2 “Strong Buy” Dividend Stocks With at Least 9% Dividend Yield

The stock market is a game of risk and calculation, and in recent months the risks are mounting. The first quarter of 2022 showed a net negative GDP growth rate, a contraction of 1.4%; another contraction in Q2 will indicate a recession.

Wall  Street’s experts are trying to look ahead, to see through the fog of uncertainty and get some feel for where things are going. Covering the market for Morgan Stanley, chief US equity strategist Michael Wilson believes that we’ll dodge the recession bullet – although it may be, in the Duke of Wellington’s words, ‘the nearest-run thing you ever saw in your life.’

In Wilson’s words, “We remain confident that lower prices are still ahead. In S&P 500 terms, we think that level is close to 3,400…” A drop of that magnitude would represent a further fall of nearly 15% from current levels. That’s for the next few months; longer term, toward year’s end, Wilson is predicting that the index will return to a trading range near 3,900.

In either of these cases – a full-blown recession, or the late-year rally in Wilson’s view – the natural move for investors will be toward defensive stocks, moves to protect portfolio investments and secure an income stream. And that will naturally draw them toward high-yield dividend stocks.

A key factor will be finding dividend stocks that yield higher than inflation, to guarantee a real return. We’ve used the TipRanks database to pull up the details on just such stocks, seen as Strong Buy choices on the Street with dividend yields of 9% or better. Let's take a closer look.

MPLX (MPLX)

First up is MPLX, the midstream spin-off of Marathon Petroleum. MPLX has operated independently of its parent company for the last 10 years, and now has a wide-ranging network of midstream oil and gas assets, owning and operating the infrastructure – pipelines, river shipping, terminals and refiners, and storage tank farms – that keep the product moving from the wellheads to where it’s needed. MPLX has a network of assets centered on the Gulf Coast but stretching out to the Great Lakes, the Rocky Mountains, and Washington State.

Several conflicting factors are running head-on into each other when it comes to MPLX’s recent performance. On the political side, the Biden Administration’s negative stance on fossil fuels, including shutting down pipelines, puts up a major headwind; ironically, that political stance, by driving up the price of oil and natural gas, has also benefited MPLX.

The company earnings rose consistently through 2021, before leveling off in 1Q22. The 78 cents EPS reported in the first quarter was flat sequentially from Q4. On the top line, MPLX saw revenues of $2.61 billion. This marked a 10% increase from the year-ago quarter.

Looking at the company’s cash flow, important for dividend investors as it funds the payments, we find that MPLX finished the first quarter with $1.125 billion in cash from operations – a total that included $1.21 billion in distributable cash. That second number backed the company’s dividend declaration at the end of April, for 70.5 cents per common share, which was paid out earlier this month. At $2.82 per common share annualized, the dividend currently yields 9.10%, more than 4.5x the ~2% average dividend found among S&P-listed companies.

5-star analyst Justin Jenkins, who covers the energy sector Raymond James, sees MPLX as a sound firm with a good foundation for growing shareholder returns.

"While MPLX cost-cutting and contract protection steadied earnings power throughout 2020, results for 2021 depicted a clear business recovery (refinery runs, G&P volumes & prices). With MPLX printing a sixth straight quarter that rounds to $1.4 billion in adj. EBITDA, there should be little question around current earnings power or the go-forward financial model. As a result, further catalysts in 2022 via buybacks and distribution growth are reasonable. We remain positive on MPLX's unique diversification (demand-pull L&S, supply-push G&P), and argue this is not fully reflected in the stock," Jenkins opined.

Overall, Jenkins believes this is a stock worth holding on to. The analyst rates MPLX shares an Outperform (i.e. Buy), and his $39 price target suggests a solid upside potential of ~20%. (To watch Jenkins’ track record, click here)

With 9 recent analyst reviews, including 7 Buys and just 2 Holds, MPLX has a Strong Buy consensus rating. Its $37.89 average price target implies a one-year upside potential for the stock of ~17%. (See MPLX stock forecast on TipRanks)

Trinity Capital (TRIN)

The next high-yield dividend payer we're looking at is Trinity Capital, a business development company that works with venture debt, the high-risk, high-potential investments made in start-up firms. Companies like Trinity make such capital available to the start-ups that drive the innovation in the economy – and the long-term winners of that cohort will define the economy of the future. Over its lifetime in the business, Trinity has made over 230 investments in start-up companies, and currently has more than $960 million in assets under management.

Trinity went public in February of last year, and since then has seen its earnings trend upward. The latest report, for 1Q22, showed a diluted EPS of 54 cents – up 74% from the 31 cents reported in 1Q21. Looking at a broader picture, the company had a total net income of $31.8 million, up 83% year-over-year, and a net investment income of $15.6 million, or 57 cents per share. This last was up an impressive 115% from the prior year.

These numbers supported both an increase in the regular share quarterly dividend, from 36 cents to 40 cents, and a special dividend of 15 cents. This gave a total dividend payment of 55 cents per common share – and the company has announced its intention to continue paying the special dividends in addition the regular distributions. Taken together, the 55 cent dividend annualizes to $2.20 and yields 13.9%; calculating with just the ordinary dividend of 40 cents, the annualized payment is 10.7%. It’s important to note here that Trinity has raised its common share in every quarter since it started paying in December 2020.

In his coverage for Wells Fargo, analyst Finian O'Shea writes of this company, “TRIN's ability to originate new deals is impressive to us, particularly given the consistency at which it has added new investments to the balance sheet (it has yet to post a net-negative origination quarter since its IPO)."

"TRIN's gains on its equity investments give it the largest spillover of any BDC we cover at $2.62 at 3/31/22 (~$2.35 adjusted for the offering), or ~17% of NAV. That should help backstop the dividend in quarters with lighter origination and prepayments, though we caution that paying spillover reduces NAV and therefore earnings power,” O'Shea added.

Clearly, O’Shea is not deeply worried by the spillover effect, as he rates this stock as Overweight (i.e. Buy) along with a $16 price target. (To watch O’Shea’s track record, click here)

Trinity is fortunate to have a unanimous Strong Buy consensus rating from the Street, as all 5 recent analyst reviews are positive. The stock is selling for $15.90 and has an average target of $19.30, suggesting a one-year upside of 22%. (See TRIN stock forecast 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.