With just seven weeks left in 2021, Wall Street’s big names are firming up their year-end forecasts.
Mike Wilson, chief U.S. equity strategist at Morgan Stanley, has set a 4,400 target for the S&P 500 by the end of 2022. That implies a fall of 6% from current levels. In his forecast, Wilson points out the factors that are likely to weigh on the markets, including “uncertainty around that expectation goes up materially given cost pressures, supply issues, along with tax and policy uncertainty that is unique to the US.”
It remains to be seen just how the market will move in the coming year. In the meantime, Wall Street’s analysts are picking out the stocks that should pick up investor interest. It should come as no surprise that high-yield dividend payers are prominent among the analysts’ picks – these stocks have long been important facets of a defensive portfolio.
Using the TipRanks database, we were able to pinpoint two such picks, ‘Strong Buy’ dividend stocks with long histories of reliability and high yields, on the order of 9%. Let’s take a closer look.
MPLX LP (MPLX)
We’ll start with MPLX, a large-cap master limited partnership company that was formed by Marathon Petroleum in 2012 to own and operate the parent company’s midstream assets. These assets include energy infrastructure logistics, including pipelines and fuel distribution services. Marathon retains a major interest in MPLX, up to 20.4%, including a controlling interest as a general partner. MPLX shares have been appreciating in the past year, and the stock is up 61% year-to-date.
MPLX’s network of midstream assets includes terminals, refineries, and river shipping, as well as pipelines, and stretches from the Rocky Mountains and the Midwest to the Gulf Coast. Storage facilities include above-ground tank farms for crude oil and petroleum products, and below-ground ‘cavern storage’ for liquified natural gas products.
MPLX reported its 3Q21 results early this month. At the top line, revenue came in at $2.55 billion, up 13% from the year-ago quarter, and the fifth consecutive quarter of sequential revenue gains. The net income for the quarter was $802 million, up 21% from the $665 million reported in 3Q20. MPLX reported generating $1.2 billion in net cash from operations – and returning up to $900 million of that to shareholders.
The cash to shareholders broke down to $155 million returned via share repurchases, and $745 million through ‘distributions,’ or dividends. The company declared its Q3 dividend payment at $1.28 per common share. The dividend includes a 70.5 cents regular payment, plus a 57.5 cent special payment. The regular dividend is up 1.75 cents from the previous payment and annualizes to $2.82 per common share. This gives a yield of 9.12%, approximately 6x higher than the 10-year Treasury bond yield.
TJ Schultz, 5-star analyst from RBC Capital, is impressed by MPLX’s cash flow and dividend, and writes of the company: “We view the special distribution as a useful lever to pull as MPLX has considered ways to return capital to unitholders. We like MPLX’s steady cash flow model, which has been bolstered by recent Permian-to-Gulf pipes coming online this year. Looking ahead, we think FCF remains robust, which provides MPLX plenty of flexibility to toggle between increased dividends (base or special), buybacks and pursuing attractive growth projects.”
In light of these comments, Schultz rates MPLX shares an Outperform (i.e. Buy), and his $36 price target implies an upside of 16% for the next 12 months. Based on the current dividend yield and the expected price appreciation, the stock has ~25% potential total return profile. (To watch Schultz’s track record, click here)
Overall, it’s clear that Wall Street agrees with the RBC outlook here. Of the 7 recent reviews on the stock, 6 are to Buy and only 1 to Hold, for a Strong Buy consensus rating. The average price target of $35.43 suggests ~15% upside from the trading price of $30.92. (See MPLX stock analysis on TipRanks)
Monroe Capital (MRCC)
The second dividend stock we’ll look at is Monroe Capital, a Chicago-based asset management firm. This middle-market lender has invested heavily in the health, media, retail, and tech sectors, providing direct lending, asset-based lending, opportunistic and structured credit, and specialty finance solutions for its clients. Monroe’s clients typically borrow between $3 million and $35 million, and the ‘target borrower’ has a proven growth strategy, a strong market dynamic, and an experienced management.
In the most recent quarter, Monroe’s net investment income reached $6.3 million, up from $5.6 million in 3Q20. Company earnings have remained stable – and ticked up in the most recent quarter. The EPS in Q3 came in at 29 cents, up ~11% from 3Q20.
The EPS, however, is of more interest to dividend investors. At 29 cents, it was more than enough to cover the 25-cent common share dividend payout declared for Q3. This dividend has remained stable for the past six quarters – but the company has a reliable payment history stretching back to 2012. The annualized rate of $1 per common share gives a dividend yield of 9.2%.
B. Riley analyst Sarkis Sherbetchyan sees Monroe Capital in a sound position within its niche, writing: “We believe MRCC is well positioned for gradual investment portfolio growth, and believe management is working hard to return non-accruing assets to accrual status over time… We appreciate management’s conservative underwriting, experience through multiple economic cycles, and affiliation with the Monroe platform, which we believe offers the BDC a strong pipeline of high-quality investment opportunities.”
Sherbetchyan was impressed enough by the company’s prospects to upgrade his forecast from Neutral to Buy, saying “shares offer an attractive valuation relative to BDC peers.” (To watch Sherbetchyan’s track record, click here)
Overall, there are 3 recent reviews on file for MRCC, and they are all Buys – making the analyst consensus view here a Strong Buy. The average price target currently stands at $11.63, which indicates room for 8% growth from current levels. (See MRCC stock analysis on 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.
