JThe market keyword heading into the final weeks of 2021 is “volatility”. Since the beginning of November, we have had more pronounced fluctuations, both up and down, especially on the NASDAQ index.
Monitoring the markets from Wall Street, the big banks are struggling to get along. There are bulls saying “Buy”, but bears are also active. On that last note, Morgan Stanley Wealth Management CIO Lisa Shalett wrote, “We expect the S&P 500 to be limited and volatile, and bond yields to be negative net of inflation… Investors should move towards stock picking and away from passive index funds.
What this means for retail investors is clear: take proactive steps to protect their portfolio. A defensive move will provide some hedging in an increasingly volatile market environment, and the natural move from such a move is towards dividend-paying stocks. The steady income stream will guarantee a return, even when stocks go down.
Using TipRanks database, we have identified two dividend-paying stocks that offer higher yields of 7% or more. These are also Strong Buy stocks, with recent positive ratings from high street analysts and better upside potential than is typical for high-yield dividend payers. Here are the details.
Blackstone Mortgage Trust (BXMT)
We’ll start with Blackstone Mortgage Trust, a real estate investment trust (REIT) that focuses on mortgages rather than direct ownership of real estate. Blackstone issues senior collateral-based loans, targeting its investments in the North American, European and Australian markets; the overall portfolio includes 157 loans totaling $22 billion.
The company’s investment strategy has been profitable; Third-quarter EPS came in at 63 cents, although flat from the year-ago quarter. Over the past year, EPS has held between 59 and 63 cents. Revenue increased this year from $185.7 million in the first quarter to $198.5 million in the third quarter.
The positive earnings were more than enough to cover Blackstone’s dividend, which has been maintained at 62 cents per common share for several years now. The company has an 8-year track record of maintaining payment reliability, and at $2.48 annualized, the dividend yields 8.2%. This compares favorably to the average dividend yield of S&P-listed stocks, which is currently around 2%.
In Wells Fargo coverage, analyst Donald Fandetti lays out the bullish case for BXMT, writing, “It’s positive to see quarterly earnings above the dividend as they continue to outpace the pandemic. Loan origination yields remain attractive despite increased competition in the industry. We consider BXMT to be well positioned in the CRE lending markets given its relationship with private equity firm BX, which is one of the largest real estate owners in the world. We believe multiples will continue to climb for the sector…”
Consistent with his optimistic approach, Fandetti gives BXMT shares a Buy rating and his price target of $15 suggests a potential upside of around 27% for the coming year. (To see Fandetti’s track record, Click here)
Although there are only 3 recent reviews for this stock, they all agree: Blackstone Mortgage Trust is a Buy stock, resulting in a strong Buy consensus. The shares are trading at $29.95 and their average price target of $35.67 suggests a 19% upside over the next 12 months. (See BXMT stock forecast on TipRanks)
Starwood Realty Trust (STWD)
The second stock we look at is Starwood, another real estate investment trust (REIT). These companies are well known for their reliable and high dividend payouts. The company primarily focuses on commercial mortgages, but also invests in residential and infrastructure loans. Overall, Starwood reaches $17 billion in total investments.
Starwood’s earnings have recovered from the spring low of last year. Third-quarter EPS came in at $51, the highest in more than two years. The company’s financial results were more than enough to support the dividend payment of 48 cents per common share, a stable payment for several years now. The dividend annualizes at $1.92 and returns a solid 7.7%.
Among the bulls is BTIG analyst Tim Hayes who is optimistic about the company’s prospects.
“So far in 4Q21 (as of 3/12), STWD has deployed $3.2 billion in its investment strategies, and we expect the company could be in store for a record quarter of investment given term pipeline and a strong liquidity position. We believe STWD is uniquely positioned to gain market share in the multifamily loan market, given its ability to be more flexible in underwriting than banks/insurers and not rely solely on tracking data in underwriting. As such, we anticipate the multifamily market will provide an outlet for significant capital deployment and attractive risk-adjusted returns.” , said Hayes.
“We consider STWD shares to be attractively valued, now trading below 1.2x our year-end book value estimate of approximately $21.20/share and at a dividend yield of 7.7% – a very attractive yield as the company is well positioned to weather higher rates, inflation and/or market volatility,” the analyst summed up.
These comments support Hayes’ Buy rating, and his price target of $29 indicates 25% upside potential over the coming year. (To see Hayes’ background, Click here)
Overall, it’s clear that Wall Street agrees with Starwood’s bullish view. The stock has 4 recent analyst reviews, and they all agree it is a Buy proposition, for a strong Buy consensus rating. The average price target of $30.50 implies a one-year upside of 31.5% from the current trading price of $23.19. (See STWD stock forecast on TipRanks)
To find great ideas for dividend-paying stocks trading at attractive valuations, visit TipRanks’ Best stocks to buya recently launched tool that brings together all information about TipRanks stocks.
Warning: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.