Jeff Erdmann Says Focus on Dividend-Growing Stocks; Here Are 2 Names That Analysts Like
This year has started with a ‘bang’ for stocks, a January rally that saw the S&P gain 6% and the NASDAQ jump 11%, a welcome change in mood from the volatile declines we saw in 2022. Even so, there is still a degree of caution. Last year’s headwinds are still with us, in the form of stubbornly high inflation and interest rates at decadal highs.
For the average investor, charting a course through these waters is a daunting task. It is in times like this that some expert advice might provide a clearer picture.
Enter Jeff Erdmann of Merrill Private Wealth Management, who has been rated the best wealth manager in the US by Forbes – every year since 2016. When he speaks, investors should listen.
Right now, Erdmann believes in staying steady in your investments, holding on for the long-term, buying into quality while avoiding leverage, and above all, never putting yourself in a position of needing to sell due to macroeconomic conditions. Erdmann is also counseling a defensive stock profile, saying, “Dividend growing equities is still our core equity style.”
We’ve opened up the TipRanks database to pinpoint two dividend stocks that may meet Erdmann’s approval. With a solid past performance of rapidly increasing dividends, both have Strong Buy consensus ratings from the analysts consensus. Not to mention they both also offer double-digit upside potential. Let's take a closer look.
Postal Realty Trust, Inc. (PSTL)
The first dividend-growing stock we’ll look into is Postal Realty Trust, a real estate investment trust (REIT) whose main focus as the company name suggests – is owning properties leased to the US Postal Service. Postal Realty is the largest such company in this niche, with 1,650 properties. The company’s property holdings total more than 5.2 million square feet of interior space, and Postal Realty realizes well over $45.2 million in annualized base rent.
On January 11, Postal Realty reported its results for 4Q22 and full-year 2022, and showed significant growth. The company acquired 320 properties during the year, spending $123 million on the purchases. During the fourth quarter, the company made 54 of those acquisitions, for $20.2 million.
Postal Realty reported 99.7% occupancy rates in its owned portfolio, a number that most REITs would be jealous of, and collected 100% of its rents due. The quarterly top line came to $13.8 million, and the bottom line was reported at 4 cents per share.
On the dividend front, Post Realty last declaration and payment were in November of 2022. The company paid out 23 cents per common share, or 92 cents annualized. At this rate, the payment yields a hair under 6%, or just about 3x higher than the average div payment found among S&P-listed firms. The most important features of this dividend, however, are its combination of reliability and growth; the company went public in 2019, and since then has reported 13 consecutive quarters of dividend growth.
In his analysis of PSTL for Colliers Securities, analyst Barry Oxford takes an upbeat view of the stock. He notes that the Post Office is an extraordinarily reliable customer, and writes of the company: “Postal has an extremely secure cash flow stream as all of their leases are backed by the US Postal Service, which has never missed a lease payment in their history. We feel that investors in this type of market given the economic / geopolitical risk should highly value certainty of revenues. Also in an increasing inflation environment, Postal has been able to increase rent 5-6% on expiring leases with a typical lease term of just 5-years. Given that lease payments represent less than 2% of total operating cost, the Post Office typically does not push back (hard) on these increases.”
Oxford doesn’t let it rest with an upbeat set of comments; he puts a Buy rating on the shares, along with a $20 price target implying that gain of 28% lies ahead for PSTL. Based on the current dividend yield and the expected price appreciation, the stock has ~34% potential total return profile (To watch Oxford’s track record, click here)
Overall, PSTL has 5 analyst reviews on record. These include 4 to Buy and 1 to Hold, for a Strong Buy consensus rating. The shares are selling for $15.62, and the average price target of $17.70 indicates a one-year upside potential of ~15%. (See PSTL stock forecast)
Armada Hoffler Properties, Inc. (AHH)
The second stock on our list, Armada Hoffler, is another REIT, this one a vertically integrated, self-managed operation. Armada’s main focus is on the acquisition, building, development, and management of high-quality properties for office, retail, and multifamily use. The company operates primarily in the Mid-Atlantic and Southeastern regions, where it also offers generalized construction and development services to third-party clients, and even develop and build out properties for addition to its own portfolio.
That portfolio of real estate investments was worth $1.58 billion at the end of 3Q22, the last quarter reported, and brought the company a net income of 38 cents per diluted share. This EPS was up 32 cents year-over-year. Solid occupancy rates and increasing rents supported the company’s income; Armada reported a Q3 retail occupancy of 98%, an all-time high for the company, and new apartment leases saw a 9% increase in rental rates. The company will report results for 4Q22 and the full year this coming February 14.
Of particular interest to dividend investors, Armada had a normalized funds from operations (FFO), the metric that directly supports the dividend payment, of 29 cents per diluted share in Q3, and published an increased guidance for full-year 2022 FFO of $1.18 to $1.20 per share.
On the dividend, Armada declared a 19-cent per common share payment in December, and sent it out this past January 5. At 19 cents, the dividend is fully covered by the quarterly FFO. It annualizes to 76 cents, and gives a yield of 6%. Return-minded investors should note that Armada has increased its common share dividend payment by 72% since the end of 2020.
Analyst Christopher Sakai covers this stock for Singular Research, and is impressed by the company’s last reported results.
“We believe AHH is well positioned to deliver strong normalized FFO growth over the medium to long-term led by new development deliveries, high occupancy, and rising rent. The Company raised its FY:22 guidance for the third consecutive quarter which suggests strong management execution and favorable tailwinds for the business. AHH’s diversified portfolio with high occupancy rates, coupled with strong industry dynamics and a healthy development pipeline, should result in a growing NAV and stock price. Meanwhile, AHH maintains a sound balance sheet and a well-covered and growing dividend," Sakai opined.
Quantifying the bullish outlook, Sakai gives AHH shares a Buy rating and a $17.50 price target that indicates potential for ~36% share appreciation in the next 12 months.
Overall, there are 5 recent analyst reviews on record for Armada, and they all agree that this is a stock to buy – giving the shares their Strong Buy analyst consensus rating. The stock is selling for $12.84 and its $14.80 average price target suggests ~17% gain on the one-year time horizon. (See Armada stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a 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.