A favorable consumer price index report for April raised hopes among investors that the Federal Reserve would cut interest rates – and this environment could prove favorable for dividend stocks.
A low interest rate environment makes dividend payers more attractive to income investors, particularly because these stocks would offer competitive returns compared to government bonds.
The recent results of several dividend-paying companies have demonstrated their resilience and ability to pay dividends despite a difficult macroeconomic environment.
With that in mind, here are three attractive dividend stocks, according to Wall Street's top pros on TipRanks, a platform that rates analysts based on past performance.
Ares Capital
The first stock on this week's list is Ares Capital (ARCC), a company focused on financing solutions for small and medium-sized businesses. On May 1, the company reported its first-quarter results and declared a quarterly dividend of 48 cents per share, payable on June 28. ARCC shares offer an attractive dividend yield of 9.1%.
Following the results, RBC Capital analyst Kenneth Lee reiterated a Buy rating on ARCC shares with a $22 price target. While the company's core earnings per share fell slightly short of the analyst's estimate, he noted that first-quarter portfolio activity, including new business, was well above his expectations in what was widely seen as a seasonally weaker quarter.
The analyst added that credit performance remains strong across the ARCC portfolio. Although the non-accrual ratio increased slightly quarter over quarter, it still remained low at 1.7% of the portfolio compared to the industry average of nearly 3.8%.
“We maintain our outperform rating as we favor ARCC's strong track record of managing full-cycle risk, well-supported dividends and economies of scale,” Lee said.
Overall, Lee is bullish on ARCC due to its size and capital position, access to the resources of the broader Ares Credit Group platform, its experienced leadership team and expectations that the company can deliver an annual return on equity above the average of its peers.
Lee ranks No. 40 among more than 8,800 analysts tracked by TipRanks. His reviews were successful 71% of the time, delivering an average return of 17.2% each. (See Ares Capital’s ownership structure on TipRanks)
Brookfield Infrastructure Partners
Next comes Brookfield Infrastructure (GDP), a leading global infrastructure company that owns and operates diversified, long-lived assets in utilities, transportation, midstream and data. The company recently announced its first quarter results and declared a quarterly distribution of $0.405 per unit.
This quarterly distribution represents a 6% increase over the previous year and is payable on June 28th. With an annual distribution of $1.62 per unit, BIP offers a yield of 5.3%.
Following the first quarter release, BMO Capital analyst Devin Dodge reiterated a Buy rating on BIP stock and stated that first quarter results were largely in line with expectations. However, the analyst lowered his price target to $36 from $40 to reflect the impact of higher interest rates on the stock's valuation.
Dodge noted that Brookfield's investment in container leasing company Triton International exceeded underlying assumptions. BIP's transportation business is benefiting from the Triton acquisition as the Red Sea crisis has led to an extension of some shipping routes and increased global demand for containers.
Meanwhile, the analyst expects BIP's capital deployment to be focused on exploiting opportunities in its existing businesses. He highlighted that the company's acquisition pipeline also includes extensive opportunities focused on Asia Pacific, North America and Europe. The analyst expects new investment activity to gain momentum through 2024.
“We believe BIP's portfolio companies are performing well, the yield is attractive and the valuation appears undemanding,” Dodge said.
Dodge is ranked #582 among more than 8,800 analysts tracked by TipRanks. Its ratings were profitable 68% of the time and delivered an average return of 10.6% each time. (See Brookfield Infrastructure's insider trading activity on TipRanks)
Real estate income
This week's final dividend pick is Real estate income (O). It is a real estate investment fund that invests in diversified commercial real estate and has a portfolio of over 15,450 properties in the United States and seven countries in Europe.
On May 15, the company paid a monthly dividend of $0.257 per share. Overall, the stock's dividend yield is 5.6% based on the annualized dividend level of $3.08 per share.
In response to Realty Income's first quarter results, RBC Capital analyst Brad Heffern reiterated his Buy rating on Realty Income's stock with a $58 price target. The analyst noted that its first quarter 2024 results slightly exceeded its expectations and were characterized by an impressive 8.2% capitalization rate in acquisitions.
Heffern added that the vast majority of acquisitions in the first quarter took place in Europe, with the region accounting for 95% of acquisition volume. The company attributed the opportunity in Europe to improving confidence in the macroeconomic outlook and motivated sellers. In comparison, higher interest rates and macroeconomic uncertainties in the US impacted transaction volumes in the first quarter. However, the company expects US volumes to pick up in the second half of the year and a clearer picture of interest rates and the macroeconomic outlook to emerge.
“We believe O has one of the highest quality net rental portfolios in the industry, with an above-average investment grade weighting, a strong industrial portfolio and a high proportion of publicly reporting tenants,” Heffern said.
Heffern is ranked #505 among more than 8,800 analysts tracked by TipRanks. Its ratings were profitable 48% of the time and delivered an average return of 12% each time. (See Real Estate Buybacks on TipRanks)