Markets have been hit by a series of economic shocks of late, most recently the banking crisis sparked by the collapse of Silicon Valley Bank earlier this month. That quickly spread fears of contagion, because the crypto-heavy banks Signature and Silvergate also failed – and then the international heavyweight Credit Suisse showed signs of cracks.
Economist Mohamed El-Erian warns that we are facing multiple problems at once, and the outlook is bleak.
“It’s not just an inflation versus growth dilemma, it’s a trilemma – inflation, growth and financial stability. And we have no good way out. The truth is that there is no longer a first best political response. Anything would have collateral damage and unintended consequences,” El-Erian said.
In El-Erian’s view, the Federal Reserve should respond by slowing interest rates and scaling back rate hikes. In El-Erian’s view, the central bank should maintain this stance until the banking turmoil subsides.
“I’m more worried about the credit issues — and that really has to do with how badly the economy is impacted by this mismanaged interest rate cycle,” El-Erian said.
In this situation, investors will naturally gravitate toward defensive stocks — and that will quickly draw attention to the high-yielding dividend payers. Dividend Stocks offer a level of security by paying out a stream of income regardless of whether the markets are moving up or down, and this will help isolate investors when the major indices turn down.
With that in mind, Wall Street’s 5-Star Analysts have picked two stocks with high dividend yields, including one that pays up to 11% if the right moves in the future. Even better, these “strong buy” stocks have double-digit upside potential up their sleeves. Let’s take a closer look.
Vitesse Energy, Inc. (VTS)
We start in the energy sector with Vitesse. This company is occupying an interesting niche by taking a non-operator position in the hydrocarbon exploration and production sector. In short, Vitesse does not participate directly in production activities, but instead owns interests in producing third party wells. In this respect, Vitesse is more like investment companies. The agreement allows Vitesse to focus solely on delivering maximum shareholder returns through the acquisition of a robust array of income generating assets.
Vitesse has been in operation for 10 years and in that time has accumulated an asset portfolio of more than 50,000 net acres with 6,000 or more producing oil and gas wells. In the ten years of its existence, Vitesse has returned over $124 million.
For most of its operating life, Vitesse was privately held, with the major shareholder being Jefferies Financial Group. Earlier this year, however, Vitesse was spun off and became a public company. VTS shares debuted on Wall Street in January.
In February, Vitesse reported its first quarterly financial results since it spun off to the public markets for the fourth quarter and full year of 2022. The company’s net income for the past year was $118.9 million, a whopping 682% increase for the year. Vitesse derived this income from its hydrocarbon production interests, which had an average daily production rate of 10,376 barrels of oil equivalent during the year. Of this, 68% was petroleum and the remainder was a combination of natural gas and natural gas liquids and products.
Of particular interest to dividend investors, Vitesse generated $147 million in cash flow from operations in 2022; Of that, $100 million was free cash flow. This cash flow gave Vitesse the confidence to declare its first common stock cash dividend of 50 cents per share. The dividend will be paid on March 31; At an annualized rate of $2, that yields an 11% return. That’s five times the average div returns found at S&P-listed companies.
All in all, Vitesse has built a solid business model that caught the eye of Jefferies’ five-star analyst Lloyd Byrne.
“Vitesse is expanding its asset base through oil and gas acquisitions, targeting assets with PDP and undeveloped inventory with near-term development potential and has made over 130 smaller acquisitions totaling ~$580 million. The differentiated competitive position enables Vitesse to continue to do so. With sufficient stock, we do not see M&A as a step to replenish stock, but as a strategic decision. We believe Vitesse could continue to serve as a consolidator of unoperated working interests at Bakken and as activity increases and E&P’s FCF prioritize growth there is a pipeline of quality opportunities,” said Byrne.
“With its substantial cash flows, Vitesse plans to pay a ~$66 million (~$2/sh DPS) fixed dividend annually, giving it one of the highest basic dividends among SMID Cap’s E&Ps,” summarized the top analyst.
Looking ahead, Byrne has a Buy rating on VTS stock and a price target of $23, suggesting a 1-year upside potential of 25%. Based on the current dividend yield and expected share price increase, the stock has a potential total return profile of ~36%. (To see Byrne’s track record, Click here)
In its short time as a public company, Vitesse has received 3 analyst ratings, all positive, supporting Strong Buy’s analyst consensus. The stock has an average price target of $22.67 and a current trading price of $18.25, which represents a potential gain of 24% over the one-year time horizon. (See VTS Stock Forecast)
Archrock, Inc. (AROC)
For the second dividend stock on our list, we’ll stay with the energy sector and take a look at Archrock, a key niche player in the natural gas industry. Archrock is a provider of natural gas compression services, the techniques and technologies required to liquefy natural gas and natural gas products. This is an essential service required for the transportation and long-term storage of natural gas.
Archrock has operations and offices in most major gas producing regions of the lower 48 states, from Montana south through the Rocky Mountains to Texas, Louisiana and the Gulf Coast to the Appalachian Mountains of West Virginia, Pennsylvania and New York. and the Great Lakes.
In February, Archrock announced its financial results for the fourth quarter of ’22. Company revenue for the quarter was $218.9 million, up 12% year over year, and reported net income of $10.5 million, an increase of 75% YoY. This income resulted in earnings per share of 7 cents a share, in line with forecasts; The sales figure had exceeded expectations by 5.6 million US dollars.
With the quarterly results, the company also declared its 15-cent common stock split. The dividend payment, which was sent out on Feb. 14, comes in at 60 cents on an annualized basis, yielding 6.2%.
That sets the backdrop for comments from RBC’s 5-star analyst TJ Schultz, who says of the company: “We are increasing 2023/2024 EBITDA estimates by 15-20% as AROC ramps up capacity utilization faster than our previous expectations increased. This should result in better pricing power and margins. The proposed growth capital is ~80% contracted and focused on Permian associated gas, which should provide more stable growth and protection from natural gas price volatility compared to dry gas basins. We believe AROC could provide investors with additional returns on capital if growth expectations are met, and the ability to generate additional rate hikes is a key reason.”
Schultz believes this outlook supports an Outperform (ie, Buy) rating for the shares and sets his price target at $15 to indicate the potential for a ~56% stock appreciation over the coming year. (To see Schultz’ track record, Click here)
Overall, all three of Archrock’s most recent analyst ratings are positive, resulting in a unanimous Strong Buy consensus rating. The stock currently trades at $9.62 and its average price target of $13.67 implies a 42% one-year rise from that level. (See Archrock stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important that you do your own analysis before making any investment.
Source : finance.yahoo.com