While the summer months have proven less profitable for stock market participants, the general trend this year has been upward.
However, the global strategist at JPMorgan, Dubravko Lakos, recently sounded the alarm, pointing to several headwinds that are piling up, which he sees as a strong cap on the market’s gains.
First, Lacus notes, stock prices are high relative to earnings. Second, he adds, sentiment is very bullish, having reversed very sharply from the bearish mood of last year. Thirdly, Lacus indicates that the Fed is likely to stick to its monetary tightening policy and possibly raise interest rates again later this year.
In addition to all this, Lacus believes that both consumer and federal spending will slow in the coming months. The era of coronavirus-related federal spending is behind us, and consumer savings are dwindling rapidly in an environment of high inflation. Both factors would stifle spending, which has long been the engine of the economy.
All of this should renew interest in strong defensive play, especially high-returning ones Dividend shares. These stocks provide protection and passive income during a difficult transition.
Wall Street analysts seem to agree, seeing high-yield dividend payers as potential winners. Let’s examine two of these choices: Buying solid stocks with dividend yields of at least 8%. Here are the details taken from TipRanks databasealong with recent analyst comments.
power transfer LP (at)
The first stock we’ll look at is Energy Transfer, which is an important transportation company in the North American oil and gas industry. Energy transportation relies on a broad range of assets, including the gathering of natural gas and crude oil, pipelines transporting petroleum, natural gas, natural gas liquids and refined products, and the processing, storage and endpoints of oil, gas and fuels. its derivatives. These origins are concentrated in Texas, Oklahoma, and Louisiana, and extend to the northern plains, the Great Lakes, the mid-Atlantic regions, and Florida. The company prides itself on offering its customers “well-to-water” transportation options.
Energy Transfer is a giant among North American transportation operators, with a market capitalization of over $40 billion. The company’s maintenance budget alone exceeds $740 million. And ET recently announced a move that will expand its network and presence in the industry. On August 16, Energy Transfer and Crestwood Equity jointly announced an agreement whereby ET will acquire all of Crestwood. The transaction, valued at approximately $7.1 billion, will be executed entirely in stock and is expected to close during the fourth quarter of 2023, subject to shareholder and regulatory approvals.
The upcoming acquisition of Crestwood will expand Energy Transfer’s asset network in Texas and give the company access to the Powder River basin of the Great Plains.
Prior to the acquisition announcement, Energy Transfer released its financial results for the second quarter of 2023. The results were disappointing, beating expectations and falling year-on-year in both the bottom line and the top end. In terms of revenue, the company brought in $18.3 billion in the top line, down 29% year-over-year, and came in below expectations of $2 billion. On the bottom line, ET reported earnings of 25 cents per diluted share. This was 14 cents lower than the earnings per share reported one year earlier, and beat estimates by 7 cents per share.
Despite declining revenues and profits, ET has retained its ability to generate strong cash flows. The company had $1.55 billion in cash flow from operations in the second quarter.
Despite the earnings loss, Energy Transfer raised its quarterly dividend slightly, by a modest 0.25% per share, to 31 cents per common share. Dividends were paid on August 21st; Its annual rate of $1.24 per common share provides a strong forward yield of 9.58%.
Turning to the analysts, Justin Jenkins of Raymond James has done a deep dive into the company’s Crestwood acquisition. The five-star analyst wrote: “Although somewhat surprising, we like the industrial logic of the deal and the theme of the merger more broadly… ET has a fully integrated asset base that can extract value in the NGL logistics space after gas and NGLs are combined Supply more upstream via CEQP (which CEQP can’t achieve.) CEQP has streamlined its structure, eliminating most of its joint ventures, shedding low-growth G&P assets, and repositioning itself as a story tied to gas supply growth – a perfect fit for ET To continue with said strategy.The teams highlighted a very conservative $40 million in synergies, which primarily reflects the lower G&A costs of integrating into one public company.In addition to the clear commercial synergies potential, we expect at least some financial synergies over time—in the form of Primary from recapitalization efforts based on ET’s higher credit rating and lower cost of capital versus CEQP.
So, in the business world, what does all this mean for investors? Jenkins rates ET shares a Strong Buy, with a price target of $17 implying an upside of 31% over the next 12 months. (To view Jenkins’ track record, click here)
Overall, ET maintains a Strong Buy consensus rating with 7 unanimously positive reviews from analysts recently. The stock is selling for $13.04 and an average price target of $17.71 indicates that it has room for the shares to gain approximately 36% in one year horizon. Based on the current dividend yield and expected price appreciation, the stock has about 45% total return potential. (be seen ET stock forecast)
Multiplex LP (MPLX)
Next up is MPLX, another North American mid-cap energy company. MPLX has an extensive network of assets for the transportation and storage of crude oil, natural gas and natural gas liquids. The company’s pipeline network connects to a series of terminal points, and MPLX also operates an inland marine fleet of tugs and river barges. Aside from transportation services, MPLX assets include oil and gas refineries, tank farms, storage facilities and coastal export terminals. The company is also involved in the distribution of refined fuels.
MPLX has a market capitalization of approximately $35 billion, and its map of operations spans across the continental United States. The company got its start more than a decade ago, when it spun off from Marathan Petroleum to serve as the operator of the parent company’s assets. Since then, MPLX has expanded its position in the transportation middle ground in North America.
The company’s financial results showed a mix of positive and negative in its most recent reported quarter, Q2 2020. MPLX experienced significant declines, with revenues of $2.69 billion. This was down 8.5% year over year, and was about $18 million lower than estimates. However, the final result of MPLX showed a better trend. The company’s GAAP earnings per share of 91 cents was 4 cents higher than forecast, and was up 8 cents per share year-over-year.
MPLX reported distributable cash flow in the second quarter of $1.315 billion. This was supported by a dividend of 77.5 cents per common share, or $3.10 annually. The dividend yield, which was paid on August 14, is 8.9%.
This partnership firm caught the attention of analyst Stifel Selman Akyol, who specifically points to MPLX’s cash generation and strong earnings as support for the bullish rating. Akyol writes: “MPLX continues to build its footprint in the Permian with a new processing plant and is expanding its JV NGL pipeline. Both projects should begin contributing additional EBITDA in 2025. We continue to favor MPLX due to FCF generation, lower leverage and return of capital to unitholder strategy We expect buybacks to play a smaller role in the second half of ’23, and we expect MPLX to increase its distribution in the third quarter of ’23.
Looking ahead, the analyst gives MPLX shares a Buy rating with a price target of $42 indicating a one-year upside potential of approximately 20%. (To view Akyol’s track record, click here)
Overall, MPLX has a Strong Buy analyst consensus rating based on 6 positive reviews. The average price target for the stock is $42, which is consistent with Akyol’s view, and indicates room for an upside of about 20% from the current trading price of $34.89. (be seen MPLX Stock Forecast)
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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.
