Mohamed El-Erian said the stock market rally could be short-lived; Here are 2 ‘Strong Buy’ stocks for stable cash
There is no doubt that 2023 is off to a good start for stock investors. Since January 5, we’ve seen a strong rally in the market – the S&P 500 is up 5% in that time and the NASDAQ has rallied more than 8%. While this doesn’t end the long-term bear market since early last year, it does offer some hope that this year could be better.
Or maybe not. Economist Mohamed El-Erian took an upbeat view on the near-term outlook, noting that ongoing headwinds could add further pressure to the market.
El-Erian doesn’t deny that recent positive developments have bolstered sentiment, especially as inflation rates cooled and the Federal Reserve’s aggressive interest rate hikes slowed. But he also pointed to four strong headwinds: the possibility of a new COVID outbreak in China; household savings in the US dried up; the possibility that US inflation will remain ‘sticky’ at 4% or higher; and the Federal Reserve may be reluctant to cut interest rates. Anyone can interfere and El-Erian sees this combination as putting an end to the current bull run.
A market environment like this practically calls for investors to take defensive action – and that naturally makes them consider dividend stocks. Reliable, high-yield div payers provide a steady stream of income that ensures profits even when the stock market goes down.
With this in mind, we used the TipRanks platform to glean insights on two “dividend champions,” whose Analyst consensus rating is Buy, and yield from 8% or more to guarantee payback. Let’s take a closer look.
Plains All American Pipeline (PAA)
The first is Plains All American Pipeline, a hydrocarbon midstream company. PAA operates in the area between wellheads and customers, transporting crude oil, petroleum products, natural gas and natural gas liquids through a network of pipelines, tank farms, and transit hubs. and transshipment, refineries and terminals. The company’s assets also include more than 2,000 trucks and trailers and about 6,000 railroad cars carrying crude oil and liquid natural gas. The Houston, Texas-based company can handle shipping more than 6 million barrels of oil and liquid natural gas per day.
The business is as big as its name suggests, and in dollar terms, PAA posted top revenue of $14.33 billion in its most recent reporting quarter, Q3 of 22. This total is up 33% year-over-year and reflects a combination of higher shipping volumes and higher commodity prices. Ultimately, the company had a net income of $384 million, a solid turnaround from a $60 million loss reported last quarter.
In terms of cash, Plains All American delivered strong operating results in Q3 of 22, with net cash from operations of $941 million, nearly triple the $336 million in cash from operations. delivered in the third quarter of 2011. Free cash flow declined year-on-year, from $1.09 billion to $726 million, but was still sufficient to fully fund the increased dividend payment. After distribution, the PAA has an FCF of $537 million.
Moving on to dividends, the company’s most recent statement came on January 9, with a Q4 payout of $0.2675 per common share. This is up 5 cents from the last payout, and the annual common stock div of $1.07 yields 8.8% certainty. Not only is that dividend more than four times the average found in the broader markets, but it’s 2.3 points above December’s annual inflation, ensuring a real rate of return. for investors.
The stock caught the eye of Truist 5-star analyst Neal Dingmann, who sees reason to be upbeat and says of PAA: “The deltas continue to benefit from the sustained growth of the system. Permian and external ecology as the basin remains one of the few engines of growth in the country. We remain confident that the company will be able to continue to increase its dividend along with an opportunistic continuation of equity repurchases with the remaining $200 million authorized. In addition to shareholder returns, we expect Plains to continue to reduce leverage while potentially starting to call some preferred shares next year assuming the stock is revalued.”
Given returns on this scale, Dingmann sees fit to rate the stock as Buy and his $15 price target implies a ~23% gain over a year’s time. Based on current dividend yield and expected price appreciation, the stock has a ~31% total potential return profile. (To see Dingmann’s achievements, click here)
Overall, PAA stock has a Strong Buy rating from analyst consensus, based on 6 recent reviews consisting of 5 Buy and 1 Hold. The shares are selling for $12.16 and their $15.67 average price target implies a 12-month viability or rally of ~29%. (See PAA stock forecast)
OneMain Holdings, Inc. (OMF)
Next is OneMain, a consumer finance company that provides financial services to subprime customers who often have difficulty accessing credit and capital through established banks. OneMain has become a leader in this niche and its range of services includes affordable loans, credit and consumer finance as well as insurance products. The company carefully screens its customers and uses purpose-designed financial products to keep default rates low – even though it caters to a group of customers not normally considered worthy of credit.
The company’s total top revenue is very consistent, ranging from $1.2 billion to $1.29 billion; The most recent quarter, Q3 of 22, brought in $1.29 billion in revenue. However, earnings have finally fallen over the past few quarters. For the third quarter, the company had a diluted EPS of $1.51. Despite a 36% drop year-over-year, this EPS beat projections of $1.32 with a 14% margin. At the end of Q3, OneMain had $536 million worth of liquid assets.
That last data is key for investors interested in returns, as cash assets support dividends. The company’s most recent statement came in November, for a 95-cent payout made on November 4. The $3.80 annual common stock dividend yields yield. 9.6%, nearly 5 times the average for S&P listed companies – and more than 3 times higher than December’s 6.5% annual inflation rate. With reasonable cash backing and rates substantial real return, this is a dividend stock that deserves a second look.
It received a second look from JMP analyst David Scharf, who wrote: “One Main Financial, with our roughly five-fold outlook by 2023, represents one of the more compelling values. , based on a more proactive approach to credit risk management than peers in the second half, in our view, outperforming capital generation and profit sharing prospects due to the exit of Many competitors in the personal loan sector are currently facing difficulties due to lack of capital.
Turning his attention to OneMain’s ability to generate profits, Scharf was impressed with the company’s efforts in share buybacks, a policy that complements dividend payments, and added, “Even after Q3 2022 with more than $1 billion in capital returned to shareholders, the company has an additional $1.4 billion in buybacks remaining in its current authorization through next June.”
Looking ahead, Scharf rates OMF Stock Doing Well (i.e. Buy), with a $49 price target to indicate confidence in a ~24% upside next year. (To see Scharf’s achievements, click here)
Overall, the last 9 analyst reviews of OneMain support a Strong Buy consensus rating with 7 Buys and 2 Holds. The average price target is $44.78 and shows a 13% increase from the current trading price of $39.61. (See OMF stock forecast)
To find great ideas for trading dividend stocks at attractive valuations, visit TipRanks’ Best stocks to buyone tool that unifies all of TipRanks’ equity insights.
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.
