President Biden ran for office on a platform that included a sudden shift in the direction of his predecessor's fiscal policy. Biden & # 39; s plans include sharp spending increases – as illustrated by the $ 1.9 trillion COVID bill passed this month – and addressing the inequality gap. Part of the strategy could lead to higher tax rates for those at the top – a downside to Trump's corporate and high net worth individual tax bill from 2017. As part of the plan, Biden and Democrats want to increase the corporate tax rate from 21% to 28%.
The concern is that tax increases will put pressure on future corporate profits, perhaps by 7%. That, in turn, will put downward pressure on stock prices as investors pull back and seek returns elsewhere.
The easiest way to address such concerns is to simply shift the portfolio's priorities from growth to dividends. While dividend stocks are typically considered defensive stocks, they can be an important part of any portfolio.
With this in mind, we used the platform Investing Insights to collect the latest scoop on two dividend stocks that offer investors more than just dividends. Yes, the yield is there – almost 7% or higher – but these stocks also score a smart score of "Perfect 10".
The platform gives each stock a one-digit score, based on the sum of 6 separate factors. The factors used are known to correlate with future overperformance; when they line up, this is a strong indication for buyers to take into account. Let's take a closer look.
Enbridge, Inc. ( ENB )
We begin our look at the Canadian energy sector, where Enbridge (NYSE 🙂 is the largest natural gas distributor in that country. Enbridge boasts a series of "bigs" in the energy transportation industry, including a 25% market share in the movement of North American crude oil and the distribution of 20% of the natural gas used by US consumers. Enbridge also operates the third largest natural gas company in North America by total number of customers.
Enbridge saw major earnings gains in its Q4 report, with GAAP earnings per share increasing 138% year-on-year to 88 cents a share. The C $ 2.25 billion in cash from operating activities was also a significant year-on-year gain. These strong quarterly results came even as the annual results showed declines from the end of 2019.
Enbridge ended Q4 with C $ 2.2 billion in distributable cash flow, an increase of 10% from C $ 2 billion in 4Q19. For the full year 2020, this measure – used to fund the dividend payment – was C $ 9.4 billion, a modest gain from its 2019 value of C $ 9.2 billion. These funds were put to good use; the company increased its quarterly dividend in 1Q21 by 3% to 83.5 Canadian cents per common share. For American investors, this amounts to 65 cents per share. Enbridge has a long history of reliable dividend policy and has delivered 26 consecutive annual increases. The current dividend yields 7.27%.
No business exists in a vacuum, and Enbridge has been boosted by a recent transaction in the Western Canadian oil sands. Brookfield Infrastructure (NYSE 🙂 Partners purchased a large amount of midstream oil capacity from that region in what was perceived as a vote of confidence from the industry. Evercore ISI analyst Todd Firestone wrote of the transaction, “… it should boost other Canadian operators, especially ENB (O / P). We would also like to make an important caveat as it is clear that "moat" assets will be increasingly appreciated, and this is all the more evident given where political / environmental challenges will evolve; this should favor long-haul pipes (NGLs at the top), fractionation and exports, and along the line with asset accumulation at the other end of the spectrum. In other words, Enbridge's exact niche should get a boost.
In line with this view, Firestone rates ENB as Outperform (i.e., a buy), with a price target of $ 55 indicating room for 52% upward growth in the coming year.
Firestone & # 39; s positive outlook for this stock is no outlier – Enbridge received 12 Buy ratings, according to a unanimous Strong Buy analyst consensus. The stock is selling for $ 36.20 and their average price target of $ 43.09 implies a 19% rise over a year. (See ENB Stock Analysis)
Brigham Minerals, Inc. ( MNRL )
We will stick to the energy sector for the second dividend stock. The oil and gas companies have a long reputation for paying strong dividends. Brigham Minerals (NYSE 🙂 owns mineral rights to several of the most productive hydrocarbon production areas in the United States, including the Bakken Shale in North Dakota and the Delaware and Midland watersheds in Texas. The company also operates in Colorado and Oklahoma.
In its most recent quarterly report, Brigham posted a 10% quarter-over-quarter increase in mineral and royalty income to $ 23.8 million. This supported an increase in dividend to 26 cents per common share. The current dividend hike is the second since the company had to cut payments in response to the COVID epidemic and indicates a return of confidence. At the new rate, the dividend yields 7.05%.
Despite a net loss, Brigham has seen a surge in stock over the past year. In the past 12 months, the stock is up 92%. The stock's rise, plus the high dividend yield, provide investors with two sources of returns on this stock.
Brigham is in the process of adjusting its dividend to achieve a target payout ratio – a move management is using to ensure the reliability of the payment, while also allowing cash distribution for operations. Raymond James analyst John Freeman describes this in his recent note on the stock, saying, “As we expected, the company lowered its payout ratio by an additional 5% to 90%, resulting in an in-line distribution of $ 0. 26 / share. Remember, the long-term payout ratio target remains unchanged at 75-80% as MNRL strives to preserve cash flow to fund future acquisitions. "
Freeman believes this is a positive move for the company, adding, “Barring all external circumstances, our base case assumes an additional 5% tapering in each quarter until the 75% target is reached in 3Q21. "
The analyst gives MNRL stock a Strong Buy rating and its $ 20 price target implies a 45% rise for the next 12 months.
This is another stock with a unanimous Strong Buy consensus rating, based on 4 recent Buy-side reviews. Shares of Brigham Mineral are trading at $ 13.80 with an average price target of $ 18.75; this gives an upward potential of 36% over a year. (See MNRL stock analysis)
Monroe Capital ( MRCC )
Last but not least is Monroe Capital (NASDAQ :), a private equity firm investing in the healthcare, media, retail and technology sectors. Monroe focuses its activities on minority and female-owned businesses, or those with employee share ownership plans. Monroe offers these sometimes disadvantaged demographics access to capital resources for business development.
Monroe has shown two conflicting trends so far this year: declining earnings and profits, along with rising stock value. The company's revenue, $ 12.6 million, was 6% lower than the third quarter and 25% year-on-year, while earnings per share fell 40% consecutively to 42 cents. On an annual basis, however, earnings per share have more than doubled. Looking at the stock price, Monroe's stock is up 60% in the last 12 months.
In terms of dividends, Monroe paid 25 cents a share in December; the next one is scheduled, for the same amount, before the end of this month. With an annual payment of $ 1, the dividend yields a strong 9.8%. This compares favorably with the average return of 2% found at comparable companies.
The dividend caught the attention of Oppenheimer analyst Chris Kotowski, who was rated 5 stars by TipRanks.
“We still see a runway towards ultimate dividend coverage with full costs as a cost as management expands the portfolio to its target leverage of 1.1 to 1.2 times (from 1.0 times currently) and resources currently available. stuck in non-accruals will be reused once it is resolved … The main driver of a BDC's return is the dividend payout over time, and we are confident that the new $ 1.00 payout of the MRCC (representing ~ 10% efficiency) is sustainable, ”noted Kotowski.
In line with his comments, Kotowski rates MRCC as an Outperform (i.e., buy), and his $ 12 price target suggests there is room to grow 25% in the coming year.
The analyst reviews on MRCC split 2 to 1 in favor of buy versus hold, making the consensus rating a moderate buy. The shares have a trading price of $ 9.59 and their average target of $ 11.13 implies a 16% rise in the coming year. (See MRCC Stock Analysis)
For more ideas for stocks trading at attractive valuations, visit Investing Insights .
