Analysts say to buy these 2 high-yield dividend stocks, including one with a 13% yield

By | September 15, 2023

It doesn’t take long for sentiment to change sharply on Wall Street. Markets could rise for a moment and then suddenly collapse due to a negative development.

And looking at its current state, it won’t take long for it to collapse, says Mike Wilson, chief investment officer and chief U.S. equity strategist at Morgan Stanley.

“The S&P 500 risk/reward ratio today is one of the worst I’ve ever seen, given the earnings structure we see ahead of us combined with the valuation we have today,” Wilson noted.

“The stock market is not trading well under the surface,” he adds, citing companies with distressed balance sheets, good news already reflected in elevated valuations, real estate challenges, the possibility of regional bank problems returning, among other issues hot with anyone who ends up in a crisis that could lead to a meltdown. The result? The S&P 500 could see a decline of more than 25% from current levels.

So, what should an investor do to protect themselves from such a scenario? Lean on the classic defensive play, dividend stocks and preferably those with high yields.

We started this process and pulled from the TipRanks database two such names that some Wall Street analysts are directing investors towards right now – and one of them even boasts a 13% yield. Let’s see why these could be the right choices to offer protection in the event of a strong shock on the markets.

Homeland Investments (PASS)

Patria is one of the leading investment firms in Latin America and boasts a global footprint with offices in 10 cities across 4 continents. The firm has 30 years of experience and had more than $28 billion in total assets under management as of June 30 this year, up 7% from the same period in 2022.

Patria’s portfolio is not only large, but also well diversified. The company has investments in private equity, credit and capital financing, real estate and strategic infrastructure projects in the energy, transportation and data sectors. Patria’s overall investment strategy has always focused on generating attractive returns for its investors.

In the company’s latest financial release, for 2Q23, Patria showed good headline results, along with a dividend declaration that should catch the attention of yield-conscious investors. At the top, Patria’s revenues were solid, coming in at $78.6 million. This figure increased by an impressive 41% year over year and exceeded forecasts by more than $14 million. Ultimately, EPS of 30 cents per share missed estimates by 1 cent, although it was up 50% from the prior-year figure.

Turning to the dividend declaration, we find that the company has set a payment of 25.1 cents per common share, made on September 8th. This payment is fully covered by company earnings, and the annualized rate of just over $1 offers a solid return. by ~7%.

Latin America is sometimes overlooked in the world economic market, but it has the potential to become a real power. With a population of 665 million and several dynamic financial markets, it’s no surprise that the region has produced major investment firms like Patria. This is the context behind BTG Pactual analyst Eduardo Rosman’s bullish view.

“We see Patria as a premium asset manager in Latin America, reflecting its strong brand power and unique financing (in hard currency with long-term commitments). Furthermore, Patria could be one of the key platforms to consolidate the wealth management market in Latin America. We think the valuation is attractive… With the Brazilian and Chilean capital markets recovering and the stock’s liquidity improving, we believe the stock is one to watch in 2H23. We are buyers at current levels,” Rosman wrote.

Along with the Buy rating, Rosman sets a price target of $21.50 for the next 12 months, suggesting a 48% gain could be on the cards. (To see Rosman’s track record, click here)

Overall, this stock has 4 recent reviews from Wall Street analysts, with a 3 to 1 split favoring Buys over Holds, for a Strong Buy consensus rating. The current trading price of $14.78 and the average price target of $18.83 combine to imply a 27% upside for the coming year. Adding in the annualized dividend, that’s a potential one-year return of 34%. (See Patria stock forecasts)

Ministry of Foreign Affairs FinanceL (AMF)

Now let’s dive into MFA Financial, a real estate investment trust (REIT) specializing in residential real estate. The company manages leveraged residential mortgage assets, which include both residential whole loans and residential mortgage-backed securities (RMBS). The company’s portfolio stands at more than $8.85 billion as of June 30 this year.

The MFA reported total assets at the end of Q2’23 of $9.73 billion. This represented a gain of approximately $620 million in six months. Importantly, more than $329 million of the company’s total assets were in unrestricted cash or cash equivalents, which can be used to support a generous dividend. REITs are required by government regulators to return capital and profits directly to investors, and often use dividends to satisfy that obligation.

The company not only holds strong cash, but also generates a profit. Even though revenue fell in the second quarter, falling 15% y/y to $44.5 million, and missed forecasts by more than $9.4 million, the company’s EPS was solid. Distributable earnings, the non-GAAP measure of revenue, came in at 40 cents per share, which was 6 cents better than forecast. With the company’s cash on hand, this EPS ensured full coverage of the quarterly dividend payments.

That dividend was last paid on July 31 at 35 cents per common share. The annualized rate of the current common stock dividend, $1.40, gives a very high yield of 13%.

This REIT has caught the attention of 5-star Wedbush analyst Jay McCanless, who sees the company’s ability to expand the portfolio and maintain the dividend as key attractions. McCanless writes of MFA: “We expect to see modest net interest margin expansion in the coming quarters, driven by modest loan portfolio growth with higher yields from an increasing mix of commercial lending. While financing costs are also expected to increase, they should be kept in check, at least in the near term, by the company’s swap book, which provided $26 million of positive carry in 2Q23. We also expect a stable and consistent contribution to Lima One’s fee revenue and a modest increase in operating expenses over our forecast horizon. At this time, we expect the company’s $0.35 quarterly dividend to remain stable through at least the end of 2025.”

The analyst quantifies his position with an Outperform (i.e. Buy) rating and a price target of $12 which implies an appreciation of the stock of 10.5% over the next 12 months. (To watch McCanless’ track record, click here)

In total, there are 6 recent analyst reviews here, with a 3-3 split between Buys and Holds to give the stock a Moderate Buy consensus rating. The average price target of $12.35 is a bit more bullish than McCanless allowed, suggesting an upside of about 15% from the current share price of $10.76. This increase, plus the dividend, together point to a yield of about 28% over the next year. (See AMF Stock Predictions)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

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.

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