President Biden ran on a platform that included, among other things, a sudden change in direction compared to the financial policy of his predecessor. Biden’s plans included a sharp spike in spending – as evidenced by the $ 1.9 trillion COVID relief bill passed this month – and addressing the inequality gap. Part of the strategy could mean higher tax rates for the top performers – a reversal of Trump’s corporate and wealthy, individual-friendly tax law for 2017. As part of the plan, Biden and the Democrats want to raise the corporate tax rate from 21% to 28%.
The concern is that tax hikes will put future corporate profits under pressure, perhaps by up to 7%. This, in turn, will put pressure on stock values as investors pull back and seek returns elsewhere.
The easiest way to allay such concerns is to simply shift portfolio priorities from growth to dividends. While dividend games are usually viewed as defensive stocks, they can be an important part of any portfolio.
With that in mind, we used the TipRanks database to get the latest information on two dividend stocks that offer investors more than just a dividend. Yes, the return is close to 7% or higher, but these stocks also have strong street analyst buy ratings and significant upside potential. In fact, some analysts see an upward trend of more than 40%. Let’s dive in and look at the details.
Enbridge, Inc. (ENB)
We begin our look at Canada’s energy sector, where Enbridge is the country’s largest natural gas distributor. Enbridge has a number of bigs in the energy transportation industry, including a 25% market share in moving North American crude oil and distributing 20% of the natural gas used by US consumers. Enbridge also operates the third largest natural gas utility in North America by total number of customers.
Enbridge saw large earnings gains on its Q4 report. GAAP earnings per share rose 138% year over year to 88 cents per share. Cash from Operations of $ 2.25 billion was also a significant gain from last year. These strong quarterly results were also seen when annual results began to decline from the end of 2019.
The story goes on
Enbridge ended the fourth quarter with distributable cash flow of $ 2.2 billion, up 10% from $ 2 billion in the fourth quarter of 19. For the full year 2020, this metric, used to fund the dividend payment, was $ 9.4 billion, a modest gain compared to the 2019 value of $ 9.2 billion. These funds have been used wisely; The company increased its quarterly dividend for the first quarter of 21 by 3% to 83.5 Canadian cents per common share. For US investors, that’s 65 cents per share. Enbridge has a long history of reliable dividend policy and has made 26 consecutive annual increases. The current dividend is 7.27%.
No company exists in a vacuum, and Enbridge received a boost from a recent deal in western Canada’s oil sands. Brookfield Infrastructure Partners made a large purchase of midstream oil capacity from this region in what was seen as an industry confidence vote.
Todd Firestone, ISI analyst at Evercore, wrote of the transaction: “… It should strengthen other Canadian operators, particularly ENB (O / P). We would also like to add an important caveat as it is clear that moat type assets are increasingly valued. This is all the more evident as the political / environmental challenges will continue to evolve. This should favor long haul pipes (NGLs at the top), fractionation and export, and asset collection at the other end of the spectrum. “In other words, Enbridge’s exact niche should see a boost.
Consistent with this stance, Firestone is outperforming (i.e. buying) ENB, with a target price of $ 55 suggesting that upward growth of 52% is possible in the coming year. (To see Firestone’s track record, Click here.)
Firestone’s bullish outlook for this stock is not an outlier – Enbridge has received 12 buy ratings, leading to a unanimous consensus among analysts at Strong Buy. The shares sell for $ 36.82 and their average price target of $ 42.91 implies an uptrend of ~ 17% for a year. (See ENB stock analysis on TipRanks)
Brigham Minerals, Inc. (MNRL)
With the second dividend stock, we’ll stick with the energy industry. The oil and gas companies have a long history of paying heavy dividends. Brigham Minerals has mineral rights to several of the most productive hydrocarbon producing regions in the United States, including the Bakken Shale in North Dakota and the Delaware and Midland Basins in Texas. The company is also active in Colorado and Oklahoma.
In its most recent quarterly report, Brigham posted a 10% increase in mineral and royalty income to $ 23.8 million from the previous quarter. This helped raise the dividend to 26 cents per common share. The current dividend hike is the second as the company had to cut payments in response to the COVID epidemic and indicates a return of confidence. The new rate results in a dividend of 7.05%.
Despite a net loss, Brigham saw its stocks appreciate sharply over the past year. Over the past 12 months, the stock is up 92%. The stock gains as well as the high dividend yield provide investors with two sources of return for this stock.
Brigham is in the process of adjusting its dividend to meet a target payout ratio – a step management is taking to ensure payment reliability while enabling cash compensation for operations. Raymond James analyst John Freeman commented in his latest release on the stock: “As expected, the company has reduced its payout ratio by an additional 5% to 90%, resulting in an inline payout of $ 0.26 / share led. Recall that the long-term payout ratio goal remains unchanged at 75-80% as MNRL seeks to maintain cash flow to fund future acquisitions. “
Believing this is a positive move for the company, Freeman added, “Subject to any circumstances, our base case expects an additional 5% declines each quarter until the 75% target is reached in Q3 21. “
The analyst gives MNRL shares a strong buy rating and his price target of $ 20 implies an uptrend of 45% over the next 12 months. (To see Freeman’s track record, Click here.)
This is another stock with a unanimous consensus strong buy rating based on 4 recent buy-side ratings. Brigham Mineral stock trades for $ 14.47 with an average price target of $ 18.75. This gives a one year upside potential of 32%. (See Brigham’s stock analysis at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the presented analysts. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.