While many growth stocks have rallied this year, investors continue to look for attractive dividend stocks that offer stable income and the potential for long-term capital appreciation.
Here are five dividend stocks worth considering, according to Wall Street’s top pundits on TipRanks, a platform that ranks analysts based on their past performance.
IBM
tech giant IBM (IBM) recently reported mixed second-quarter results. While sales fell short of expectations, the company’s profits beat estimates on the back of improved gross margin.
IBM is transforming its business, focusing on growth areas like hybrid cloud computing and artificial intelligence. The company generated over $3.4 billion in free cash flow and paid $3 billion in dividends for the first six months of 2023. IBM expects full-year free cash flow of $10.5 billion.
Earlier in the year, IBM increased its quarterly dividend by a modest 0.6% to $1.66, marking its 28th straight year of dividend increases. IBM’s dividend yield is about 4.6%.
Following the results, Stifel analyst David Grossman raised his price target for IBM shares from $140 to $144 and reiterated his buy rating. The analyst slightly increased his estimates for 2023 and 2024 based on organic and inorganic growth in the company’s software business.
“IBM has been a source of capital year-to-date and remains the best fit for the dividend-focused value investor looking for a defensive market hedge,” Grossman said.
Grossman is ranked 389th among more than 8,500 analysts tracked by TipRanks. Its reviews were profitable 64% of the time, with each one delivering an average return of 14.4%. (See IBM Blogger Opinions and Sentiment on TipRanks)
chord energy
Next comes chord energy (CHRD), an oil and gas operator with assets in the Williston Basin. The company rewards its shareholders with a quarterly base dividend, a variable dividend, and stock buybacks.
For the first quarter, Chord declared a cash dividend totaling $3.22 per share, including a variable dividend of $1.97 per share.
Scott Hanold, an analyst at RBC Capital, sees the possibility of the company exceeding its 75% minimum payout to shareholders if excess cash accumulates and no other value-added acquisition opportunities arise. Hanold expects Chord to pay a variable dividend of $0.15 per share for the second quarter, along with a base dividend of $1.25 per share and share buybacks in the $25 million to $30 million range Dollar.
Ahead of the upcoming results, Hanold lowered its estimates for earnings per share and cash flow per share for the second quarter of 2023 due to lower commodity prices, wider price differentials and lower production. He also lowered his price target on CHRD to $180 from $185 to reflect his new commodity price forecast.
Nonetheless, Hanold is bullish on CHRD and reiterated his Buy rating on the stock, saying, “The company’s balance sheet is strong and debt is minimal, providing an opportunity to allocate a significant portion of FCF for shareholder returns.”
Hanold, who is ranked 43rd out of more than 8,500 on Tipranks, has a 63% success rate and each of his reviews has averaged 21.4%. (See Chord Energy Hedge Fund trading activity on TipRanks)
Energy transfer LP
Another RBC Capital analyst, Elvira Scotto, is bullish on dividend stocks energy transfer (AND), a public limited partnership that operates a vast network of pipelines spanning 41 states.
On July 25, Energy Transfer announced a quarterly cash payout of $0.31 per common unit for the second quarter, up 0.8% compared to the first quarter of 2023. That puts the dividend yield at over 9%. The company is targeting 3% to 5% growth in its annual payout.
Looking ahead to second-quarter results, Scotto believes midstream company performance will be impacted by lower commodity prices. Nonetheless, the analyst reiterated his buy rating on Energy Transfer shares with a price target of $17.
“We believe ET has one of the most attractive integrated asset bases in our midstream coverage universe and view ET as a compelling investment opportunity trading at a discount to large-cap peers in terms of EV/EBITDA and at an FCF.” [free cash flow] ~14% yield, Scotto said.
The analyst believes ET is well positioned to generate a significant increase in cash flows which, coupled with its solid balance sheet, could result in higher cash returns through higher payouts to shareholders.
Scotto ranks 53rd among more than 8,500 analysts on TipRanks. Additionally, 65% of their reviews were profitable, with an average return of 19.6%. (See Energy Transfer Stock Chart on TipRanks)
EOG resources
Another energy name this week is EOG resources (EOG), an oil and gas exploration and production company. Last year, the company generated $5.1 billion in return from regular and special dividends, which is 67% of its free cash flow.
For the first quarter of 2023, EOG declared a regular quarterly dividend of $0.825 per share, payable July 31. Additionally, the company repurchased $310 million of stock during the first quarter. EOG offers a forward dividend yield of about 2.6%.
Mizuho analyst Nitin Kumar recently revised his estimates for EOG ahead of upcoming results to reflect actual pricing and well productivity improvement in Delaware based on data from his company’s proprietary database. Kumar’s volume estimates for the second quarter of 2023 are leaning towards the higher end of the guidance range.
The analyst forecasts EOG to post free cash flow of $753 million in the second quarter, though he expects overall pricing to fall 10% compared to the first quarter.
“Compared to the base dividend charge of approximately $484 million and cash on hand of over $5 billion as of March 31, the company should have excess cash to opportunistically execute buybacks,” said Kumar, who co-authored the buy recommendation for EOG a price target of $146 reiterated.
Kumar is ranked 111th out of more than 8,500 analysts on TipRanks. Its reviews were profitable 69% of the time, delivering an average return of 22.5%. (See EOG insider trading activity on TipRanks)
MorganStanley
Finally, let’s look at a dividend stock from the financial sector: MorganStanley (MS). Recently, the global financial services giant reported better-than-average second-quarter results as strength in its wealth management division offset lower trading revenues.
Last month, Morgan Stanley announced that it would increase its quarterly dividend per share from $0.775 to $0.85 beginning with the dividend declaration in the third quarter of 2023. With this increase, Morgan Stanley’s future dividend yield is around 3.6%. The bank’s board of directors also re-approved a multi-year, $20 billion share buyback program to begin in the third quarter of 2023.
The bank’s positive second-quarter results prompted James Fotheringham, an analyst at BMO Capital, to raise his guidance by 1% to 2% and raise his price target on MS stock to $103 from $100. The analyst reiterated a buy rating on the stock, noting that the wealth management department remains the “bright spot.”
“After two lackluster quarters for capital markets, MS noted the emergence of ‘green shoots’ across all businesses, suggesting an improvement in deal activity near-term,” said Fotheringham.
Fotheringham is ranked 215th out of more than 8,500 analysts on TipRanks. Additionally, 65% of its valuations were profitable, with an average return of 12.4%. (See Morgan Stanley Financial Reports on TipRanks)