At the bottom, investors enter the market for the same reason: to make money. And that motivation will push them to find an equity strategy that delivers solid returns no matter what the markets are doing. Conventional wisdom will suggest two of these strategies: buy stocks when their price is low, and engage in dividend-paying stocks.
The first is self-explanatory. Low-priced stocks have more room for stock appreciation, and Wall Street analysts are always looking for solid buys with a low cost of entry. As for the second, dividends have long been used as a defensive strategy, to guarantee a flow of income from the portfolio in all market conditions.
It is of course possible to follow a hybrid investment strategy. Finding stocks with both a low stock price and high dividend yields should pay both ways – and professional analysts have picked stocks that offer these dual benefits.
Using TipRanks Database, we have identified two of these choices. These are stocks listed for purchase, with a combination of a huge upside and a high dividend yield. We are talking here about at least 11% yield. Let’s take a closer look.
Falcon Minerals Company (FLMN)
We will start in the energy sector. Falcon Minerals is a small-cap oil and gas company, with energy and mining rights to more than a quarter of a million acres in the Permian Basin of Texas. The Company’s main assets are located in the Eagle Ford shale formation in this basin; Falcon has over 3,000 potential drill sites in this region. The company also has assets in the production of Marcellus Shale gas in the Appalachians. Falcon’s assets in this region include royalty rights to approximately 300 active gas wells.
Falcon describes its mission as providing the best return to investors, based on the production of oil and gas from the company’s land holdings. To this end, the recent 2Q21 financial report should be of interest to investors. The company posted a strong increase in both total revenue and EPS, completing an apparent turnaround from the depressed results of the past four quarters. In first place, oil and gas revenues of $ 18.93 million were the best in more than two years; the EPS figure of 7 cents in profit was the best since 3Q19. Falcon’s gains were driven by a 22% quarter-over-quarter increase in net production from 1Q21. Also on a positive note, Falcon saw its pro forma free cash flow increase 48% from the first quarter, reaching a total of $ 13.3 million.
Building on the strong quarter, Falcon management recently declared a dividend payment of 15 cents per common share. The company has a habit of adjusting the dividend to keep it in line with cash and distributable earnings, and reducing payouts during the corona crisis. The current 15-cent payout increase marks a full return to pre-pandemic dividend levels, as the dividend has not been as high since the August quarter of 2019. The current dividend is annualized to 60 cents per common share and gives a strong return of 12.55%.
Analyst Eduardo Seda , of Jones Trading, notes both the strong cash flow and the variable dividend policy of the company. For the end result on Falcon, Seda writes: “During 2Q21, we note that FLMN’s operational performance has shown continuous improvement. In our opinion, this was mainly the result of strengthening commodity prices, higher production (due to growing demand for energy as global economies continue to reopen after lockdowns from the Covid-19 pandemic ) and cost control. “
To that end, Seda rates this stock as a buy, and its price target of $ 11 implies a 134% hike for the coming year. Seda explains that his goal is based on: “1) a weaker capital structure as FLMN continues to reduce its debt in 2021 and beyond; and 2) our slightly higher distribution growth rate increase from 2021 and beyond. is the result of FLMN’s payout ratio greater than our estimate of 80.0%. “(To see Seda’s balance sheet, Click here.)
Overall, Falcon has 5 recent analyst reviews, split 4: 1 between Buy and Hold, giving the stock a Strong Buy analyst consensus rating. The average share price target of $ 7.3 implies an upside potential of approximately 55% from the current trading price of $ 4.7. (See the analysis of FLMN shares on TipRanks)
Capital of Oxford Lane (OXLC)
From energy, we will turn to the world of finance. Oxford Lane Capital is a closed-end management investment firm that specializes in debt and equity tranches of secured loan bond vehicles (CLOs). The company’s portfolio consists primarily of senior secured loans and a combination of high yield bonds and mezzanine debt. Oxford Lane avoids exposure to home loans, mortgages and consumer debt pools.
Oxford Lane’s net asset value (NAV) per share has increased steadily this year. Between the end of the first calendar quarter and the second calendar quarter, the company saw its net asset value increase from $ 5.94 to $ 6.56, an increase of over 10%. During the same period, the company reported total investment income (TII) of $ 41.7 million, up $ 5.6 million from the previous quarter. $ 40 million of that income came from CLO’s equity investments. On a per share basis, Oxford Lane reported net investment income of 41 cents, nearly double the result for the quarter last year.
This company pays its common stock dividend as a monthly distribution and at the end of July declared the payment for October-November-December at 6.75 cents. This annualizes to 81 cents per common share and gives an impressive return of 11.3%.
B. Riley analyst Matt howlett likes what he sees in Oxford Lane’s, noting: “OXLC enjoys a leading cost of capital and currently enjoys the most profitable investment portfolio, which is heavily concentrated in CLO stocks. OXLC generates the highest returns in the space on GAAP and cash flow bases, which, combined with its scale, consistently generates superior ROE performance. “
The analyst continued, “We believe investors in OXLC can benefit from the structure of the company and its ability to access exclusive returns in the CLO stock market that are not generally available to public investors. OXLC’s permanent capital structure and its ability to access low cost debt to the holding company creates a powerful cash flow that can be paid to shareholders. The stock has the highest cash return compared to its peers, and NII is poised to grow… “
Based on these comments, Howlett assigns a buy rating to the stock. Its price target, at $ 8, indicates upside potential of around 11% from current levels. Based on the current dividend yield and expected price appreciation, the stock has a potential total return profile of around 22%. (To look at Howlett’s track record, Click here)
Overall, this stock gets a moderate buy rating from Wall Street analysts based on two positive reviews. The stock sells for $ 7.21 and has an average target of $ 8, matching Howlett’s. (See the analysis of OXLC shares on TipRanks)
To find great ideas for dividend-paying stocks traded at attractive valuations, visit TipRanks’ Best stocks to buy, a recently launched tool that brings together all the information about TipRanks shares.
Disclaimer: The opinions expressed in this article are solely those of the analysts presented. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.