What to make of the markets lately? Early September showed a sharp drop from peak values, but since the eighth of the month – for the past three weeks – volatility has ruled the day. All the major indexes have bouncing up and down without showing a clear trend.
While increased volatility is almost certainly going to stay with us for a while, it’s time to consider defensive stocks. And that will bring us to dividends. By providing a steady income stream, no matter what the market conditions, a reliable dividend stock provides a pad for your investment portfolio when the share stop appreciating.
With this in mind, we’ve used the TipRanks database to pull up three dividend stocks yielding 8% or more. That’s not all they offer, however. Each of these stocks has a Strong Buy rating, and considerable upside potential.
Solar Senior Capital (SUNS)
The first stock is Solar Senior Capital, an investment management company focused on an externally managed non-diversified portfolio. SUNS invests in mid-market companies, taking positions in unitranche instruments, secured loans, and first and second lien debt. The company’s investment targets are mid-market firms with below-investment grade credit ratings, and its portfolio is valued at $532.4 million.
Solar’s earnings, up to 1Q20, had held steady at 35 cents per share – but that took a sudden dive in the second quarter this year, coming in at 32 cents. That drop came even as the company also reported a solid financial base, with net assets of $249 million and available capital exceeding $210 million.
Despite the lower earnings, the quarterly results were sufficient to maintain the dividend. This is paid monthly, at a rate of 10 cents per common share, making the quarterly distribution 30 cents. This leads to a high payout ratio, but at current earning levels the dividend is sustainable. The annualized payment, of $1.20, gives a yield of 9.4%, which is more than 4.5x higher than the average dividend yield found among S&P index members. The company has paid out the dividend reliably, no matter the market conditions, since 2011.
Covering this stock for Ladenburg, analyst Mickey Schleien rates SUNS a Buy, along with a $15 price target. This target implies an 18% upside for the coming year. (To watch Schleien’s track record, click here)
Supporting his stance, Schleien writes, “…the company's pipeline is increasing with more compelling opportunities at higher yields. SUNS is operating within the incentive management fee catch-up band, and the external manager continues to waive fees to the extent necessary for NII to cover the dividend through 2020.”
The Strong Buy analyst consensus rating on SUNS is unanimous, based on 3 Buy reviews. The stock’s $12.68 trading price and $15.67 average price target give a one-year upside potential of 24%. (See SUNS stock analysis on TipRanks)
Barings BDC, Inc. (BBDC)
Barings, the next stock on our list, is a busines development corporation. The company provides capital access and asset management for its customers, middle-market companies seeking financing solutions. Barings invests in debt, equity, and fixed income assets, and boasts over $346 billion in total assets under management.
While Barings took a hard hit to revenue in the first quarter, as the corona crisis took hold, the company has seen the top line return to positive numbers in the second quarter. At $56 million, the Q2 revenue was also more than 4x higher than results in the second half of 2019. Earnings have been stable, with EPS reported between 14 and 16 cents for the past 7 quarters.
In another sign of strength, Barings in August completed an agreement to acquire MVC Capital. The deal, which totals $177.5 million in cash and stock, is expected to close in 4Q20 and will create a combined company with an investment portfolio worth more than $1.2 billion.
While that move is going forward, BBDC continues to reward shareholders. The company has been gradually growing its quarterly dividend payment for the past two years. The current payout is 16 cents per common share, giving an annualized payment of 64 cents and a robust yield of 8%.
Raymond James analyst Robert Dodd notes the importance of the MVC transaction for BBDC: “…we expect that BBDC will recognize a top-line income contributor 'accretion of purchase discount' over the life of the MVC portfolio.” Dodd goes on to note that this will have a positive impact on the dividend, writing, “We are projecting a dividend increase following the close of the MVC acquisition. We believe the dividend could be increased from the current $0.16/share per quarter to $0.17/share in 1Q21. While we believe earnings power will exceed that level, over-coverage is a good thing in our view — and we believe projecting a 90% payout ratio is prudent.”
Dodd’s comments back up his Buy rating on the stock. He gives Barings a $9.50 price target, which indicates room for 19% growth over the next 12 months. (To watch Dodd’s track record, click here)
Overall, Barings’ Strong Buy consensus rating is held up by 3 recent Buys against a single Hold. The company has an average price target of $9, suggesting a 12.5% upside from the $8.01 trading price. (See BBDC stock analysis on TipRanks)
TriplePoint Venture Growth (TPVG)
The last stock on our list is another management investment company. TriplePoint Venture is a venture capital investment firm with a portfolio focused on the tech and life sciences. These are high-growth industries that gobble up cash – but also offer the promise of high returns.
TriplePoint’s earnings have been falling off this year from their peak, at 45 cents per share in Q4 of last year, even as revenue as recovered from corona-induced losses in the first quarter. For the second quarter, the top line came in at $23 million, while EPS slipped 7% to 38 cents. Even though earnings are down, they still beat the forecast by 5.5%.
However, the company’s dividend payment has been remarkably stable for the past few years. Except for one downward blip in December 2018, the dividend has been consistently paid out at 36 cents per common share per quarter. This gives an annualized payment of $1.44, and a powerful yield of 12.8%. The high yield, combined with the reliable payment history, make this dividend valuable, especially in a time of near-zero interest rate policy.
Christopher York, 4-star analyst with JMP Securities, believes that the recent second quarter results justify an Outperform (i.e. Buy) rating on TPVG, and his $13 price target implies an upside of 16%. (To watch York’s track record, click here)
Backing his outlook, York writes, “TPVG remains our favorite BDC idea for those that trade below $500mln in market cap; we find the stock especially attractive for both yield-seeking and value investors [...] We continue to believe TriplePoint's core dividend run-rate of $0.36 is sustainable throughout 2021 and note that the total return requirement in the incentive fee should provide additional support to dividend coverage from any future credit losses.”
Overall, Wall Street’s analysts have been nothing but bullish on TPVG over the past three months. Out of 5 analysts who cover the stock, all 5 are bullish. Meanwhile, their average price target of $13.30 suggests a 19% upside from current levels. (See TriplePoint’s stock analysis at TipRanks)
To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.