Since early this year, Wall Street has faced a storm of macro headwinds that have turned last year’s bullish run into a bearish trend. Year-to-date, the NASDAQ is down 27%, and the S&P, with a loss of 18%, is not far behind. The drop in the markets comes along with gains in Treasury bonds – the 10-year Treasury note rate is nearly up to 2.9%. In a thumbnail summary, we can say that last year, investors looked at the markets through TINA’s (there is no alternative) eyes; now, conditions are starting to show those alternatives.
In this environment, Goldman Sachs is recommending that investors seek out a ‘margin of safety,’ to protect their investment portfolios should market conditions worsen. Among the factors recommended by the investment banking giant is a reliable dividend, to ensure a steady income stream.
Against this backdrop, the stock analysts at Goldman Sachs have picked out for recommendation stocks whose dividend payments are yielding above the market average. We’ve used the TipRanks’ database to pull up details on two of these stocks; let’s take a closer look at them.
Simon Property Group (SPG)
The first dividend stock we’ll look at is a real estate investment trust (REIT), a class of companies well-known for their reliable, high-yielding dividend payments. Simon Property Group is a major investor in retail properties, with one of the largest portfolios of shopping mall and retail properties in the US. The company’s properties include 99 shopping malls and 69 premium retail outlets, along with 31 international locations. As of the end of 2020, SPG holds an 80% stake in Taubman Realty, an important mall operator with 24 properties in the US and Asia.
Simon’s properties bring steady earnings, and since 1Q21 have been consistently above the $1 per share level. In 1Q22, SPG reported net income for shareholders of $426.6 million, or $1.30 per diluted share. Total funds from operations (FFO), a key metric for REITs, grew 12% year-over-year from $934 million to $1.046 billion.
In two important metrics, the company boasted a 2.7% increase in its occupancy rate from 1Q21 to 1Q22, from 90.8% to 93.3%. And across the company’s properties, the base minimum rent per square foot, as of the end of March, was $54.14.
Looking ahead, SPG increased its FFO guidance for 2022 to $11.60 to $11.75 per share; this represents a half-percent bump at the midline, and puts the high end above the analyst consensus of $11.72. Overall, Simon’s results in 1Q22 beat the previously published forecasts.
With this financial performance in the background, Simon had the confidence to bump up the dividend for the June payment, from $1.65 in the last quarter to $1.70 upcoming. At $6.80 per common share annualized, this gives the dividend a yield of 6%, nearly 4x the average found among firms on the S&P index.
In coverage of SPG for Goldman Sachs, analyst Caitlin Burrows sees the company moving to support its growth and share value for stockholders, He writes, “SPG can allocate its sizable post-dividend and post-redevelopment retained cash (which we estimate will average over $1.0 billion per year in 2022 and 2023) towards external growth (via acquisitions of retail platforms, and high quality retail properties), or alternatively towards repurchasing its shares… the company announced an up-to $2.0 billion share repurchase program (over 24 months), and plans to repurchase its stock. We view management’s commentary and the announced share repurchase program as positives…”
In line with these comments, Burrows gives SPG a Buy rating, and a $166 price target to imply a 12-month upside of 45%. (To watch Burrows’ track record, click here)
Overall, the Wall Street analyst consensus on Simon Property is a Moderate Buy based on 6 Buys and 8 Holds issued in recent months. SPG shares are trading for $114.5, and have an average price target of $153.29; this suggests a 12-month upside potential of ~34%. (See SPG stock forecast on TipRanks)
HF Sinclair Corporation (DINO)
The second dividend stock on Goldman’s radar is an energy company, formed earlier this year from the merger between Holly Energy Partners and Sinclair Oil. The combined entity, HF Sinclair, started trading under the DINO ticker in March, and has generated plenty of interest from both inside and retail investors.
Earlier this month, HF Sinclair reported its first financial results (1Q22) since the completion of the merger. At the top line, the company reported $7.45 billion in total revenues. This supported a net income in the quarter of $175.9 million, or 99 cents per diluted share.
Sound financials supported a 14% increase in the declared dividend – the next payment will be 40 cents per common share. The annualized rate, of $1.60, yields 3.4%, more than double the S&P average. This is the first dividend increase for DINO; as HollyFrontier, the company had a 7-year history of gradually increasing the dividend.
Covering the stock for Goldman Sachs, 5-star analyst Neil Mehta writes that he’s bullish on DINO, including among his reasons: “We (1) see valuation as compelling at current levels following multi-year underperformance vs. peers, (2) believe capital returns are set to inflect, with DINO now offering the highest 2023 capital returns yield within our c-corp refining coverage on our estimates, (3) see the current margin environment as supportive of both refining and specialty product profitability, driving upside risk to consensus estimates, in our view.”
Mehta’s bullish statements back up his Buy rating on DINO, while his $56 price target suggests a 22% upside for the stock in the year ahead. (To watch Mehta’s track record, click here)
Like SPG above, DINO has a Moderate Buy rating from the analyst consensus. This is based on 12 recent analyst reviews, breaking down to 8 Buys and 4 Holds. The stock is trading for $46.94 and its average price target, at $48.33, implies just 5% growth in the next 12 months. (See DINO stock forecast on TipRanks)
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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.
