An Exxon Mobil Corp logo is seen at the Rio Oil and Gas Expo and Conference in Rio de Janeiro, Brazil, September 24, 2018.
Sergio Moraes | Reuters
Dividend-paying stocks look even more attractive as investors contend with a rise in bond yields and a turbulent stock market.
With that in mind, here are five attractive dividend stocks, according to Wall Street’s top experts on TipRanks, a platform that ranks analysts based on past performance.
Exxon Mobil
First on this week’s list is Dividend Aristocrat Exxon Mobil (XOM). The energy giant offers a yield of 3.4%. The company’s 3.4% dividend increase last year marked the 40th consecutive year of annual dividend growth. Exxon’s dividends are supported by solid earnings and cash flow.
In the second quarter, the company distributed $8 billion to shareholders through $4.3 billion in share repurchases and $3.7 billion in dividends. It generated free cash flow of $5 billion in the June quarter.
Mizuho analyst Nitin Kumar reiterated his Buy rating on Exxon with a price target of $139 after attending the company’s Product Solutions Spotlight event. The analyst said the company is on track to meet its goal of increasing profit from its product solutions by $10 billion by 2027, up from $6 billion in 2019.
“With annual profit of $11.5 billion in the first half of 2023, the company is halfway to that goal, with the biggest benefit so far coming from cost reductions,” Kumar noted.
He expects major strategic projects recently initiated, such as the Beaumont crude oil expansion and the Baytown chemical expansion, as well as major projects planned for 2024 to 2027, such as the Singapore Resid Upgrade Project, to help Exxon to achieve the majority of the targeted improvement in results by 2027.
Kumar is ranked No. 67 among more than 8,500 analysts tracked by TipRanks. Its ratings were profitable 71% of the time and delivered an average return of 19.8% each. (See Exxon insider trading activity on TipRanks)
Coterra Energy
Kumar is also optimistic Coterra Energy (CTRA), an oil and gas exploration and production company with principal operations in the Permian Basin, Marcellus Shale and Anadarko Basin. Earlier this year, the company increased its annual base dividend by 33% to 80 cents per share.
The company’s shareholder return strategy is to distribute 50% of its free cash flow through basic dividends, share repurchases and variable dividends. CTRA has realigned its 2023 returns strategy to prioritize buybacks over variable dividends. In the first six months of 2023, the company paid $303 million in dividends and conducted $325 million in share repurchases, with total return to shareholders representing 94% of free cash flow.
Last month, Kumar hosted investor meetings with CTRA’s management and said the key takeaway was that the company was confident of delivering solid returns on capital in most commodity price scenarios. Management particularly emphasized the flexibility and optionality of CTRA’s asset base and capital allocation strategy.
“In our view, the commonality of their decisions is the potential to exceed the three-year plan (2023-25), which envisages oil growth of more than 5% for about $2.0-2.1 billion in total investment – either through less investments or… more volumes – but without deterioration in capital efficiency,” Kumar said.
Kumar named CTRA as his top pick and reiterated a Buy rating on the stock with a $42 price target. (See Coterra financial reports on TipRanks)
Brookfield Infrastructure Partners
Next on this week’s dividend list is: Brookfield Infrastructure (GDP), which operates utilities, transportation, midstream and data assets. BIP paid a quarterly dividend of $0.3825 per share on September 29, representing a 6% year-over-year increase in the payout. The company offers a dividend yield of 5.5%.
At an investor day event last month, management discussed its goal of achieving greater than 12% unit operating cash growth over its 1- to 3-year outlook.
RBC Capital analyst Robert Kwan, ranked No. 194 out of over 8,500 analysts tracked on TipRanks, noted that the company’s targeted FFO/unit growth is expected to be driven in part by its significant organic capital backlog, primarily in the data center business.
The analyst also believes that given the capital constraints in the current environment due to a slowdown in fundraising activity, a company like Brookfield has the potential to increase returns by investing capital above its internal return on capital (IRR) target The range is 12 to 15%.
“We believe share price weakness provides an attractive entry point based on a current 5% distribution yield with potential for double-digit underlying FFO/share growth,” Kwan said.
Kwan reiterated a Buy rating on BIP shares with a price target of $45. Its ratings were profitable 64% of the time and delivered an average return of 10.8% each time. (See GDP stock chart on TipRanks)
American Electricity
Shelby Tucker, another analyst at RBC Capital, is bullish on utility stocks American Electricity (AEP). On Oct. 2, the company named Charles E. Zebula as its new chief financial officer and reiterated its 2023 operating income guidance of $5.19 to $5.39 per share and a long-term operating income growth rate of 6% to 7%.
AEP paid a quarterly dividend of 83 cents per share on Sept. 8, its 453rd consecutive quarterly cash dividend. It offers a dividend yield of 4.6%.
Recently, Tucker lowered the price target on AEP from $103 to $90 to reflect the high interest rate environment, but reiterated his Buy rating. The analyst said the stock remains one of the company’s top picks in 2023 and one of the best utilities in its class.
The analyst believes AEP’s $40 billion regulated investment plan, focused on transmission network expansion, provides strong resilience to a challenging macroeconomic backdrop and cost inflation. Tucker also expects the company to benefit from Inflation Reduction Act incentives.
“We believe AEP deserves a modest premium to valuations due to the rapid decarbonization of its power generation fleet and robust investments in regulated renewables,” the analyst said.
Tucker is ranked 367th among more than 8,500 analysts on TipRanks. Additionally, 61% of its ratings were profitable, with each one producing an average return of 8.1%. (See AEP blogger opinions and sentiment on TipRanks)
Darden Restaurants
Darden Restaurants (DRI), the owner of Olive Garden and other popular brands, delivered better-than-expected results in its fiscal first quarter, despite a decline in consumer spending that impacted the company’s deli segment.
The company paid $159 million in dividends in the fiscal first quarter and invested about $143 million in share repurchases. With a quarterly dividend of $1.31 per share (annualized dividend of $5.24), DRI stock’s dividend yield is 3.7%.
Following the results, JPMorgan analyst John Ivankoe reiterated his Buy rating on DRI stock, but lowered the price target to $174 from $176.
The analyst noted that the company’s same-store sales growth of 5% beat its estimate of 4.4%, with its steakhouse chains Olive Garden and LongHorn offsetting weakness in fine dining. Additionally, DRI’s same-store sales growth exceeded the industry average of 0.9%.
“Finally the 10%+ TSR [total shareholder return] (EPS + annual dividend yield) remains intact for F24/25,” Ivankoe said.
Ivankoe is ranked 854th among more than 8,500 analysts tracked on TipRanks. Additionally, 60% of its ratings were profitable, with each one producing an average return of 7.1%. (See DRI hedge fund trading activity on TipRanks)