TipRanks
3 large dividend shares with a minimum yield of 9%; BTIG says ‘buy’
How important are dividends to a stock investor’s profits? Speaking before the Financial Sector Regulatory Authority (FINRA) on October 15, 2007, investment guru John Bogle put the case forward: “In the past 81 years … reinvested dividend revenue represented approximately 95 percent of the compound return of long run obtained by companies in the S&P 500. These impressive numbers seem to require that mutual funds highlight the importance of dividend income. ”In other words, dividends are very important! Of course, at the moment the average share in the S&P 500 is paying only about 2% of dividend yield, which is not much. If you want to do better than that, however, the REIT sector is a great place to start your search for high-yield dividend stocks. REITs are companies that acquire, own, operate and manage real estate portfolios, usually some combination of residential or commercial properties, or their associated mortgage loans and mortgage-backed securities. Tax law requires these companies to return profits directly to shareholders, and most of them choose dividends as their vehicle of choice for compliance, resulting in high dividend yields frequent across the industry. The slowly shrinking COVID pandemic was difficult for property managers, as tenants had trouble renting and landlords had trouble renting vacant spaces. However, BTIG analyst Tim Hayes believes there are reasons to remain optimistic about CRE properties, specifically. “While we recognize the trade winds against the fundamentals of commercial real estate (CRE) and the potential risk to capital / profit power, we believe there are several reasons to be constructive, especially with the sector being negotiated at a discount from historical levels and offering attractive dividend yields on wide spreads with reference rates, “commented Hayes. In this context, we opened the TipRanks database to obtain the latest statistics on Hayes’ CRE choices. These are shares in which the analyst initiated purchase classifications, pointing out his high dividend yield. We are talking about at least 9% here. Ares Commercial Real Estate (ACRE) The first dividend choice we are considering is Ares Commercial Real Estate, a company focused on the commercial real estate mortgage sector. Ares has a diversified portfolio – with offices, apartments, hotels and mixed-use properties – mainly in the Southeast and West regions. The company has more than $ 2 billion invested in 49 separate loans, 95% of which are senior mortgage loans. At the end of October, the company released its 3Q20 (last reported quarter) earnings, showing $ 22.4 million in total revenue, with a 13% year-over-year gain. The profit of 45 cents per common share has increased 40% since the previous year. In addition, Ares closed a $ 667 million commercial real estate loan obligation, with financing under 23 privileged loans. Regarding dividends, Ares declared its 4Q20 dividends in December. The payment, at 33 cents per common share, was paid on Jan. 15 – and is fully covered by current income levels. At current rates, the dividend is annualized to $ 1.32 and yields an impressive 10.50% yield. Among the optimists is Hayes, who wrote: “We believe that ACRE’s shares are discounted unfairly in relation to other commercial mREITs, given Ares’ strong sponsorship, a very healthy balance sheet and limited exposure to assets at risk”. In his opinion, this leaves the company “well positioned to face the headwinds of COVID-19”. In line with these comments, Hayes values ACRE as a Buy, and its target price of $ 13.50 implies a 10% increase from current levels. (To view Hayes’ history, click here) Only one other analyst posted a recent review of ACRE, also classifying the shares as Buy, which makes the analyst’s consensus here a Moderate Buy. The shares are quoted at $ 12.28, and their average price target of $ 12.75 suggests room for modest ~ 4% growth. (See ACRE stock analysis at TipRanks) KKR Real Estate Finance Trust (KREF) Next is KKR, which operates in the commercial real estate industry, with almost half of its stakes in the states of New York, Illinois, Pennsylvania and Massachusetts. The company owns and finances commercial properties; 83% of its activities are with homes and offices in desirable urban locations. KKR’s quality can be seen in the company’s quarterly results. The liquidity position was strong – KKR reported $ 700.6 million available at the end of 3Q20, reported in the last quarter. 56 percent earnings per share increased 7% sequentially and 36% year on year. Further evidence of KKR’s solid position came in early January, when it announced that it had closed 7 new commercial loans in the fourth quarter, totaling $ 565.4 million. This level of activity is a clear sign that KKR is recovering from the economic crisis related to the pandemic. The solid foundation put the company in a position to continue its dividends – which have been kept reliable for four years. The most recent statement, made in December, was a 43 percent dividend per common share that was paid in mid-January. This fee gives an annual payment of $ 1.72 per common share and a hefty 9.7% yield. Covering KREF, Hayes is most impressed by the company’s move back to proactive loan origination, saying: “We see the 4Q20 origination activity in line with pre-pandemic production and demonstrates a shift from” defense “to” offensive. “as transaction activity has accelerated and capital markets remain accommodative. We expect greater capital deployment to support earnings power and dividend coverage, and could potentially justify an increase in dividends as the macroeconomic outlook improves.” To this end, Hayes gives a Buy to KREF and sets a target price of $ 19.50 which indicates ~ 6% growth from current levels. (To see Hayes’ history, click here) Wall Street has been silent about everything KREF, and the only other recent review also recommends a purchase. Together, the shares have a moderate purchase consensus rating. Meanwhile, the average price target is at 19.26 and implies a high the modest ~ 5%. (See KREF stock analysis at TipRanks) Starwood Property Trust (STWD) For the third stock on Hayes’ list of options, we resorted to Starwood, a REIT commercial mortgage with a varied portfolio of $ 50 first mortgages and mezzanine loans million to $ 500 million range. The company operates in the United States and Europe, has a market capitalization of US $ 5.9 billion and has offices in New York, London and San Francisco. Starwood’s high-tech portfolio brought solid gains, even during the ‘corona recession’ of 2020. The company recorded $ 152 million in GAAP earnings in 3Q20, reaching 53 cents per share, for gains of 8% sequentially and 6% over year throughout the year. With that in the background, we can see the company’s dividend, which has remained stable at 48 cents per share for more than two years. The last statement was made in December, and the dividend was paid on January 15. At the current rate, it is annualized to $ 1.92 and the yield is 9.23%. Again, we are looking at a stock that Hayes recommends buying. “We see STWD as one of the few“ blue chips ”in the commercial mREIT sector, due to its size, liquidity, first-class management team, strong balance sheet and diversified investment platform that has consistently generated stronger ROEs than its pairs. To that end, STWD is one of the few commercial mREITs that has not restructured its liabilities with expensive redemption capital or cut its dividends since the beginning of COVID-19, ”said Hayes. Overall, there is little action on the street towards STWD now, with only one other analyst agreeing on a view on the company’s prospects. An additional purchase rating means that STWD qualifies as a moderate purchase. However, the average price target of $ 21 suggests that shares will remain in the limited range for the foreseeable future. (See the STWD stock analysis on TipRanks) To find good ideas for trading dividend stocks with attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that gathers all the information about TipRanks stock. Disclaimer: The opinions expressed in this article are exclusively those of the analysts presented. The content should be used for informational purposes only. It is very important to do your own analysis before making any investments.