Oe are in the midst of a market shift, a shift from a trading environment that favors growth stocks to one that will favor value stocks. Investors should beware as the change will naturally lead to high levels of volatility – as evidenced by the current corrective situation we are seeing on the NASDAQ and the 8% drop in the S&P 500.
Mike Wilson, head of US equity strategy at Morgan Stanley, believes that the key point in the near future will be US Federal Reserve stocks. The central bank has now pledged to end quantitative easing, its asset purchase program that has underpinned its market support policy for more than a decade now.
Wilson points out that the Fed’s policy shift has been in the air for months now and markets are slowly adjusting to that prospect. “40% of the Nasdaq having corrected by 50% or more…. market breadth remains lackluster as it goes through the classic rolling correction below the surface as the index rises,” Wilson noted.
Coming to the immediate effect on investors’ decisions, Wilson adds: “Stocks are [still] a decent hedge against inflation, unlike bonds. However, some actions fit this billing better than others. In its simplest form, that means value versus growth stocks or short duration versus long-term stocks – think dividend growth stocks.”
Taking Wilson’s advice into account, we used TipRanks database zero on two dividend-paying stocks with high yields – 7% or more, as well as long-term performance that has outpaced broader markets. Each stock also holds a Strong Buy consensus rating; Let’s see what makes them so attractive to Wall Street analysts.
TPG RE Funding Trust (TRTX)
The first security we look at, TPG RE, is a real estate investment trust (REIT), a class of companies that have long been known to be excellent dividend payers. That reputation comes from a quirk of tax regulations, which requires REITs to return a large portion of profits directly to shareholders — and dividends are a convenient way to comply.
At the end of 4Q21, TPG managed a diversified portfolio of real estate assets, totaling $5.4 billion in the US primary and secondary markets. Commercial offices and multi-family dwellings made up the bulk of this portfolio, at 42% and 29% respectively; the hotel space was the third largest segment, at 12% of the portfolio. Geographically, the company’s investments are primarily in the Eastern and Western United States, at 40% and 23% respectively, with the Southeast, Midwest, and Southwest taking roughly equal shares. rest.
The company will release its 4Q21 financial results next month, but has already released some of the numbers. Loan originations for the full calendar year 2021 totaled $1.9 billion, with 10 loans totaling $651 million in the fourth quarter. Loans on multifamily properties accounted for 68% of new originations.
In December, TPG announced its fourth quarter dividend, declaring a payout of 24 cents per common share. That cancels out at 96 cents per common share and yields a yield of 7.7%, which compares favorably to the average dividend yield found in broader markets. In addition, the company also declared a special fourth quarter common stock dividend payment of 7 cents per share.
BTIG analyst Tim Hayes sees this company positioning itself for the Fed’s shifting policy towards higher interest rates. He writes: “The wtd. avg. The LIBOR floor on the loan book fell ~25 basis points Q/T to 1.10%, and was down from 1.66% as of 12/31/20. As older loans repay and capital is reinvested in new loans with lower LIBOR floors, we expect the portfolio to become more asset sensitive and able to benefit from higher rates.
Overall, the analyst is bullish on the stock’s outlook and adds, “We continue to view TRTX shares as an attractive value, trading at a nearly 20% discount to book value. and a current dividend yield of 7.7% despite taking steps to increase ROE and increase the dividend, while improving capital structure and maintaining strong credit performance.”
To that end, Hayes rates TRTX as a buy and sets a price target of $15 to imply a 22.5% year-over-year upside. Based on the current dividend yield and expected price appreciation, the stock has a potential total return profile of around 30%. (To see Hayes’ background, Click here)
Overall, it’s clear this is a stock Wall Street loves; the 3 recent opinions are unanimously positive, for a Strong Buy consensus. TRTX shares are priced at $12.25, and the average target of $15.17 suggests room for upside of around 24% over the next 12 months. (See TRTX stock forecast on TipRanks)
Arbor Real Estate Trust (ABR)
For the second dividend, we will be looking at Arbor Realty Trust, a mortgage lender in the commercial and multifamily market. The company is a direct lender, funding loans for Fannie Mae and Freddie Mac, and making financing available to multi-family residential developers. In the third quarter of last year, the most recent quarter reported, the company issued more than $2.47 billion in new loans.
These arrangements represented only a part of the company’s total portfolio. Arbor’s loan book was over $9 billion at the end of 3Q21, up 24% year over year. Net income for the quarter fell year-over-year from $82 million to $72.8 million, but distributable income, at 47 cents per common share, more than covered the company’s generous dividend.
Arbor is paying 36 cents per common share in dividends, according to the third quarter statement. The company has been steadily increasing the dividend payment for several years; at the current rate, it annualizes to $1.44 and yields 8.5%.
5-star analyst Stephen DeLaney of JMP is bullish on Arbor’s outlook, writing, “ABR’s outlook remains attractive with good execution across all lines of business and lending pipelines remain near highs. historical. We believe ABR shares continue to provide an attractive total return investment opportunity due to the clear need/demand for more affordable multi-family and single-family rental housing in this country and the steps ABR has taken to improve both sides of its balance sheet.
Consistent with these positive comments, DeLaney rates the stock as an outperformer (i.e. a buy), and his price target, at $23, implies a 35% year-over-year upside within the year at to come. (To see DeLaney’s track record, Click here)
Although there are only 3 recent reviews of this stock on file, they all agree that it is a Buy proposition, giving ABR its strong Buy consensus rating. The stock is selling for $17.02 and has an average price target of $22.33, for upside potential of 31% year over year. (See ABR stock forecast on TipRanks)
Warning: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.