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3 main dividend shares with growth opportunities; Goldman Sachs Says ‘Buy’
Investing means finding profits, and investors have long seen two main paths towards that goal. Growth stocks, stocks that will give a return based mainly on the appreciation of the share price, are one way. The second path goes through dividend shares. These are shares that pay a percentage of profits to shareholders – a dividend, usually sent quarterly. Payments vary widely, from less than 1% to more than 10%, but the average, among the stocks listed on the S&P 500, is around 2%. Dividends are a good addition for a patient investor as they provide a stable income stream. Goldman Sachs analyst Caitlin Burrows is investigating the real estate trusts segment, a group of shares long known for high and reliable dividends – and she sees many reasons to expect strong growth in three stocks in particular. Running the trio through the TipRanks database, we found that all three were applauded by the rest of Street as well, as they boast a consensus of “strong buy” analysts. Broadstone Net Lease (BNL) First, Broadstone Net Lease, is an established REIT that went public last September in an IPO that raised more than $ 533 million. The company placed 33.5 million shares on the market, followed by an additional 5 million acquired by subscribers. It was considered a successful opening, and BNL now has a market capitalization of more than $ 2.63 billion. The Broadstone portfolio includes 628 properties in 41 US states, in addition to the Canadian province of British Columbia. These properties host 182 tenants and are worth a total of $ 4 billion. The best feature here is the long-term nature of the leases – the weighted average of the remaining lease is 10.8 years. During the third quarter, the most recent with complete financial data available, BNL reported a net profit of $ 9.7 million, or 8 cents per share. Revenue came mainly from rentals, and the company reported having collected 97.9% of rentals due in the quarter. Looking ahead, the company expects $ 100.3 million in property acquisitions during the fourth quarter, and a 98.8% increase in the rental charge rate. Broadstone’s revenue and high rents support a dividend of 25 cents per common share, or $ 1 a year. It is an affordable payment for the company and offers the investor a return of 5.5%. Goldman’s Burrows sees the company’s acquisition movements as the most important factor here. “Cumulative acquisitions are the main earnings driver for Broadstone … Although management interrupted acquisitions after COVID-induced market uncertainty (BNL did not complete any acquisitions in 1H20) and prior to its IPO, we are confident that acquisitions will increase in 2021, and we saw the beginning of activity in 4Q20 … We estimate that BNL will reach a positive investment spread of 1.8%, leading to 0.8% of profit growth (in 2021E FFO) for each $ 100mn of acquisitions (or 4.2% on our 2021E acquisition volumes), ”Burrows opined. To this end, Burrows assesses BNL as a purchase, and its $ 23 target price implies an ~ 27% upside for next year. (To see Burrow’s history, click here) Wall Street generally agrees with Burrows in Broadstone, as shown by the 3 positive ratings the stock has accumulated in the past few weeks. These are the only ratings in the file, the analyst consensus classifi that a strong unanimous purchase. The shares are currently quoted at $ 18.16 and the suggested target average price of $ 21.33 estimates a year-on-year upside of ~ 17%. (See BNL stock analysis at TipRanks) Realty Income Corporation (O) Realty Income is an important player in the REIT field. The company has a portfolio of more than $ 20 billion, with more than 6,500 properties located in 49 states, Puerto Rico and the United Kingdom. Annual revenue exceeded $ 1.48 billion in fiscal 2019 (the latest with complete data) and maintained a monthly dividend for 12 years. Looking at the current data, we found that O posted 7 cents per share in 3Q20, along with $ 403 million in total revenue. The company collected 93.1% of the rental contracted in the quarter. Although relatively low, a breakdown of monthly figures shows that rental charges have increased since July. As noted, O pays a monthly dividend, and has done so regularly since the public listing in 1994. The company increased its payment in September 2020, marking the 108th increase during that period. The current payment is 23.45 cents per common share, which is annualized to $ 2.81 cents – and yields 4.7%. Based on the above, Burrows has placed this stock on his Conviction List in the Americas, with a Buy rating and a target price of $ 79 for the next 12 months. This target implies an increase of 32% in relation to the current levels. Supporting his position, Burrows noted: “We estimate a 5.3% growth in FFO per year between 2020E-2022E, against an average of 3.1% for full REIT coverage. We expect the main profit drivers to include a continued recovery in acquisition volumes and a gradual improvement in cinema rentals (in 2022). “The analyst added:” We assume that O will make $ 2.8 billion in acquisitions in each of 2021 and 2022, against the consensus expectation of $ 2.3 billion. [We] we believe that our acquisition volume assumptions could indeed be conservative, since, eight days in 2021, the company has already made or agreed to make $ 807.5 million in acquisitions (or 29% of our estimate for 2021). “Overall, Wall Street takes an optimistic stance on Realty Income shares. 5 purchases and 1 Hold issued in the previous three months make the shares a strong buy. Meanwhile, the average price target of $ 69.80 suggests a high approximately 17% compared to the current stock price. (See stock analysis at TipRanks) Essential Properties Realty Trust (EPRT) Lastly, Essential Properties owns and manages a portfolio of commercial properties from a single tenant across the U.S. There are 214 tenants in more than 1000 properties in 16 sectors, including car wash, convenience stores, medical services and restaurants Essential Properties has a high occupancy rate of 99.4% for its properties In 3Q20, the company had an 18.2% year-over-year increase in revenue to $ 42.9 million Essential Properties ended the quarter with an impressive $ 589.4 million in available liquidity, including cash, cash equivalents and available credit. strong cash position and increased revenues left the company confident enough to increase dividends in the fourth quarter. The new dividend payment is 24 cents per common share, an increase of 4.3% over the previous payment. The current rate annualizes to 96 cents and yields 4.6%. The company has been increasing its dividends regularly for the past two years. In his analysis for Goldman, Burrows focuses on the recovery Essential Properties has made since the height of the COVID panic last year. “When on-site shelter mandates went into effect in early 2020, only 71% of EPRT properties were open (either completely or on a limited basis). This situation improved in the intervening months and now only 1% of the EPRT portfolio is closed … We expect future growth in EPRT earnings to be driven by increased acquisitions and we estimate a potential revenue growth of 2.8% of $ 100 millions of acquisitions, ”wrote Burrows. In line with his optimistic approach, Burrows gives EPRT’s shares a Buy rating, along with a target price of $ 26 a year, suggesting a 27% rise. Altogether, EPRT has 9 recent analyst reviews, and the split of 8 purchases and 1 sale gives the stock a strong buy consensus rating. The shares are quoted at $ 20.46 and have an average price target of $ 22.89, offering an upward potential of ~ 12% from current levels. (See TipRanks EPRT stock analysis) To find good ideas for trading dividend stocks in attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all TipRanks stock perceptions. Legal Notice: 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 investment.