Stocks started 2023 with a 7% gain on the S&P 500 and a 13.5% gain on the NASDAQ. It’s a solid performance to start the year, but will it last?
According to Emmanuel Cau, head of European equity strategy at Barclays, we may not be completely out of the woods yet.
“Despite a still sticky labor market, softening US data (ISM below 50, weak housing data) matter for the response task of central banks, which are now more balanced between fighting inflation and preserving growth.” Appears. One should not get carried away. , as CB has clarified that the rate hike is not over and it will be dependent on the data,” said Cow.
Taking a cautious approach may prove to be a prudent solution; Investors can take refuge in defensive plays which will provide some income padding in the portfolio. dividend stock are a common choice; If the returns are high enough, it can offset losses elsewhere.
Theresa Chen, a 5-star analyst at Barclays, finds two names that deserve a second look. These are stocks with dividend yields of 8% or better, and according to Chen, they both stand as potential winners in the months ahead. let’s take a closer look.
Magellan Midstream Partners ,mmp,
The first stock we’ll look at, Magellan Midstream Partners, operates in the North American hydrocarbon sector, which is the vital heart of the energy industry. Midstream companies such as Magellan exist to move petroleum and natural gas products from production wells to distribution and storage networks spanning the continent. Magellan’s assets include approximately 12,000 miles of pipelines, tank farms and other storage facilities, and marine terminals. The company’s network extends from the Great Lakes and Rocky Mountains to the Great Mississippi Valley and the Gulf of Mexico.
Magellan just reported its 4Q22 results, and showed quarterly net income of $187 million to end the year. That was down from $244 million in the year-ago quarter, a decline of 23% year-over-year. The current net income result was negatively impacted by a non-cash impairment charge of $58 million related to the company’s investment in the Double Eagle pipeline. EPS came in at 91 cents per diluted share, down 20% from the $1.14 reported in 4Q21.
Of immediate interest to dividend investors, Magellan reported an increase in its distributable cash flow (DCF). This is a non-GAAP metric that indicates the company’s resources to cover the dividend, and it increased y/y from $297 million to $345 million in 4Q22.
And that brings us to dividends. Magellan announced a 4Q div payment of $1.0475 per common share, to be paid on February 7th. At the current payout, the dividend is 8%, a half point higher than the previous inflation figure. That’s enough to ensure a realistic rate of return, but Magellan also offers investors a few other treats in the dividend bag: The company maintains a reliable payout, and management has a long-standing habit of increasing its dividend annually.
For Barclays Chain, this equates to a stock that is worth an investor’s time and money. She writes: “We consider MMP a quality MLP with 85%+ fee-based cash flow, a strategically located footprint, a flexible asset base, a proven performance track record of organic growth, a healthy balance sheet and one of the Most competitive cost of capital in our coverage… We think MMP will benefit from both tariff increases in its refined products pipelines in mid-2023… MMP also has a healthy 8 % yield and is one of the few midstream companies in our coverage that regularly deploys FCF for unit repurchases.
Chen MMP rates the stock as Overweight (i.e. Buy), with a $59 price target that suggests an upside of 12% for the coming months. Based on the current dividend yield and expected price appreciation, the stock has a potential total return profile of around 20%. (To see Chen’s track record, Click here,
What do the rest of the Street think? There have been 11 analyst reviews for this stock over the past 3 months, and they show a breakdown of 6 Buy, 3 Hold and 2 Sell, for a Moderate Buy consensus rating. (Look Magellan Stock Forecast,
Nustar Energy LP ,NS,
Next on our list is NuStar Energy, a master limited partnership company that operates pipeline and liquid storage operations for hydrocarbons and other hazardous chemicals for the US energy industry and in Mexico. NuStar has approximately 10,000 pipeline miles and 63 terminals and storage facilities for crude oil and its refined products, renewable fuels, ammonia and other specialty liquids. The company’s storage farms can handle up to 49 million barrels.
For NuStar, it adds up to big business. The company consistently reports over $400 million in quarterly revenue. In the last reported quarter, 4Q22, NuStar’s top line came in at $430 million, compared to $417 million in the year-ago period. For the full year 2022, revenue is expected to increase from $1.62 billion in 2021 to $1.68 billion.
While top line growth was modest, quarterly net income in the fourth quarter of $91.6 million was up 59% year-over-year and a company record. Diluted EPS was 18 cents, down from 19 cents reported in 4Q21. For all of 2022, NuStar’s net income was $222.7 million, a tremendous y/y increase from 2021’s $38.2 million.
Turning to the dividend, we’ll look first at distributable cash flow. DCF here was $89 million for 4Q22, a sharp increase of 41% from $63 million in 4Q21. The solid cash flow allowed the company to maintain its 40-percent quarterly dividend payment per common share, a rate the company has kept through 2020. An annualized payout rate of $1.60 per share gives this stock a dividend yield of 9.5%, up 3 points from the previous inflation reading.
Covering the stock for Barclays, Chen writes that she remains optimistic about NuStar’s ability to generate profits going forward.
Barkley’s chain has been impressed with NuStar’s execution in recent months, writing: “We continue to like NS based on its offensive and defensive fundamentals. NS’s refined products infrastructure in the Mid-Con and Texas Demand remains deficient, where driving is often the only mode of transportation … In the medium to long term, NS looks to potentially service renewable fuels through its West Coast biofuel terminals and its ammonia pipeline system Appears to be an active participant in the energy transition.
Chen uses these comments to support his Overweight (i.e. Buy) rating on this stock, while his $19 price target reflects an upside potential of 12% for the year ahead.
Generally, the tone of the street here is more cautious. On a Buy, 2 Hold and 1 Sell basis, analysts currently rate the stock as Hold (i.e. Neutral). (Look NuStar Stock Forecast,
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disclaimer: The views expressed in this article are those of select analysts only. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.