Well, the numbers came in this week and the Fed did what we expected, while inflation exceeded expectations. That is, inflation slowed its pace, from 7.7% in October to 7.1% in November, and the Federal Reserve responded by raising interest rates by 50 basis points. And the next day, the market reacted with a plunge.
The full-blown drop came after investors had a chance to understand the Fed’s recent numbers and comments. The Fed has signaled that although it will raise rates at a slower pace, to match slower inflation, it will still raise rates – to 5.1% by the end of 2023. That raises the risk The chance of pushing the economy into recession, a risk that November’s retail sales report showed slowing consumer activity, was only highlighted.
Looking at the market situation, Mike Wilson, head of US equity strategy at Morgan Stanley, wrote: “CPI has peaked. Peak of inflation. We are fairly confident it will fall quite sharply in the next quarter. next year. And the real question is, ‘What does that mean in terms of slowing growth that hasn’t been priced in. And that’s what’s going to decide the winner — it’s a stock-picking game.”
Play Wilson’s stock pick game we used TipRanks database to find two defensive stocks that are beating the market trend. These are high-yielding dividend-paying companies, with yields of 9% or higher, that are also showing strong gains this year. They are beating the market losses and offer two routes for investors to get real profits. And even better, both have a ‘Strong Buy’ consensus rating from the analyst community. Let’s take a closer look.
Crestwood Equity Partners (CEQP)
We’ll start with Crestwood Equity, an energy company heavily involved in the middle class of the industry. Crestwood has an extensive network of properties, in the Marcellus Shale of New York-Pennsylvania and in the Great Lakes region, in the Powder and Williston River basins of Wyoming, Montana and North Dakota, in the Delaware Basin of Texas-New Mexico, and in some Southeast states. The company’s assets are in the collection, transportation and storage of hydrocarbons, primarily crude oil, natural gas and natural gas liquids.
Crestwood reported mixed results in its recent Q3 2022 report. The company posted top revenue of $1.57 billion, up 27% year over year, while at the bottom line, a diluted EPS loss of 64 cents was an improvement from a loss of 1. $0.03 reported last quarter – but missed the profit forecast by 19 cents.
Overall, Crestwood stock has performed well this year. The company’s shares are up more than 9% year-to-date, outpacing the S&P 500’s 18% drop in the same period.
Looking at the dividend, we see that Crestwood is in a strong position to benefit shareholders. The company reported a 53% increase in its distributed cash flow (DCF) for the third quarter year-over-year, growing from $85.8 million to $131 million. DCF supports a common stock dividend, announced in November at $0.655 per share, up 5% year-on-year. At an annual rate of $2.62, the dividend yields 9.35%, well above the S&P average and 2 points above the current rate of inflation. .
In his article on this energy dividend champion, Truist . 5-star analyst Neal Dingmann recognizes the company’s potential to increase cash flow – and thus capital gains – in the future as an incentive to buy.
“Crestwood’s focus over the next few quarters will be on continuing to integrate and optimize its recently attractive properties, which we forecast will deliver notable earnings and increased cash flow over the coming year. We believe the company now has a strategic portfolio in the top US plays with diversified G&P infrastructure assets along with solid warehousing and logistics associated with it,” said Dingmann. .
“We forecast CEQP will generate over $600 million in distributable cash flow in 2023 compared with just over $500 million this year. We estimate the company will hit its long-term leverage target of 3 ,5x by mid-2023, potentially yielding more shareholder returns after that,” the analyst added.
Dingmann’s comments support his Buy rating on the stock, while his $35 price target implies a 25% upside potential over the next year. Based on current dividend yield and expected price appreciation, the stock has a ~34% total potential return profile. (To see Dingmann’s achievements, click here)
Dingmann’s actions were not unusual on Wall Street; Based on 4 Additional Buys, the stock boasts a Strong Buy consensus rating. Furthermore, the $34.40 average target implies that the stock will change hands at a ~23% premium a year from now. (View CEQP stock forecast on TipRanks)
Alliance Resource Partners (ARLP)
We’ll stick with the energy sector, but let’s look at coal. Despite the political and social push for ‘green’ energy, most electricity in the US and in fact, around the world, is still generated from coal-fired power plants, and coal is also essential in steel production from iron. In short, it’s a fuel that’s not going away anytime soon — and Alliance Resource Partners, with operations in Appalachia and the Illinois basin, is the second-largest coal producer in the eastern US, acting as a supplier. for both utility and industrial customers.
Alliance had a profitable year and saw revenue grow to record levels. Top revenue for Q3 FY22 was $628.4 million, up more than 51% year-over-year. The increase in sales was driven by a 40.5% increase in coal prices, which pushed coal sales up year-on-year from $188.3 million to $550.6 million. Alliance also earned royalties from its oil and gas holdings and reported $35.5 million in revenue from that source — an impressive 75.6% year-over-year increase.
At the bottom line, Alliance also saw strong gains. Net income increased from $57.55 million in the third quarter of 21 to $164.61 million in the third quarter of 2022; Looking at diluted EPS, net profit increased from 44 cents per share to $1.25, an increase of 184%.
The company’s stock has performed well on the strength of Alliance top and bottom returns, up nearly 80% by 2022, even in light of the volatile market conditions we’re facing.
Steady revenue and earnings have supported Alliance’s dividend, which jumped 25% in its most recent announcement, from 40 cents per common share to 50 cents. The new, higher dividend was paid on Nov. 14. At an annual rate of $2 per common share, the dividend yields a yield of 9.17%. This output is much higher than average and much higher than inflation. Alliance Resource has maintained a reliable dividend payout since 2001.
Nathan MartinBenchmark’s five-star analyst, scrutinized Alliance and found reasons to be optimistic about the company’s ability to maintain high dividend yields going forward.
“Full year 2023 is expected to be another record year with a dense contract book, additional production of up to 2 million tonnes and average coal prices still projected to be ~$10/ton higher than with the same period…. With this cash flow visibility, the board approved a 25% QoQ increase in ARLP’s quarterly distribution to $0.50/unit, exceeding the 10% -15% increase previously targeted. The company is also investing in growth, both organically with additional reserves at River View and Tunnel Ridge to help maintain ARLP’s low-cost position,” explains Martin.
Going into next year, Martin rates ARLP stock as a Buy, along with a $28 price target, indicating his confidence in a 28.5% gain over a one-year time horizon. (To see Martin’s achievements, click here)
Although the coal producer has not attracted much analyst attention, all three recent analyst reviews of the stock have been positive, leading to a consensus rating of Buy Strong. . The shares have a price of $21.79 and an average target of $28.67 that suggests ~32% upside potential over the next 12 months. (View ARLP stock forecast on TipRanks)
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deny the responsibility: The opinions expressed in this article are those of prominent analysts only. Content is used for informational purposes only. It is very important that you do your own analysis before making any investment.