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2 “Strong Buy” Dividend Stocks With at Least 7% Dividend Yield

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Welcome to the last month of 2021. If you’re confused on how to read current market conditions, you are probably not alone. The past 3 sessions have been marked by volatility with wild swings from one extreme to the other. The market appears to be lacking direction in the face of the Omicron variant’s rise and the Fed’s admission elevated inflation levels might not be transitory after all.

It’s a moment made for defensive stocks, for the short-term hedges that protect an investment portfolio from market declines and high volatility. In short, it’s a moment that should have investors moving toward dividend stocks. These are the classic defensive play, with generally lower volatility than most other equities and a reliable income stream to balance out drops in the share price.

Bearing this in mind, we used the TipRanks’ database to zero-in on two stocks that are showing high dividend yields – at least 7%. Each stock also holds a Strong Buy consensus rating; let’s see what makes them so attractive to Wall Street’s analysts.

Altria Group, Inc. (MO)

We’ll start with a classic ‘sin stock,’ Altria Group, the well-known maker of cigarettes, including the iconic Marlboro brand. A series of headwinds have buffeted the tobacco company in the past year, ranging from the trade disruptions secondary to the COVID pandemic to the underperformance of the company’s large investment in the brewing company AB-Inbev to lawsuits and losses resulting from its purchase of the JUUL smokeless electronic cigarettes and a patent dispute with British American Tobacco.

We all know complications that COVID has wrought, but Altria’s other issues may require some explanation. Altria has for years held a 10% stake in AB-Inbev, and until 2018 profited handsomely from the brewer’s high dividend. Inbev has since then cut back the dividend, and now pays out ~20% of its 2018 levels; the cuts came secondary to the company’s deeply leveraged purchase of SABMiller in 2016.

After the SABMiller acquisition, Altria’s stake in BUD was subject to lock-up restrictions which expired in October of this year. There was speculation that the tobacco company would divest itself of the underperforming brewer – but at the end of October, Altria announced that it would keep the BUD stake. The company reiterated its confidence in AB-Inbev’s ability to meet its challenges based on a sound long-term strategy and premium global brands.

The e-cig issue may be more important for Altria at the moment, and may explain the company’s keeping the beer investment. Altria was long considered poised to dominate e-cigs, having the smokeless heated tobacco IQOS system and a 35% stake in JUUL. But over the course of this year, JUUL is getting hit with anti-trust lawsuits, putting Altria in the way of a potential $13 billion hit – and worse, the US International Trade Commission ruled that IQOS violated British American Tobacco’s patents, and must be removed from the shelves. While these developments could shut Altria out of the e-cig market, for the moment the impact is minor; this segment made up only a small part of the company’s revenue.

That revenue growth was sound in 3Q21, although it came in below the year-ago figures. Altria reported a top line of $5.53 billion, down 2.6%, while the EPS of $1.22 was up slightly, 2.5%, from 3Q20.

Altria maintained its commitment to returning profits to shareholders, expanding its share repurchase from $2 billion to $3.5 billion, and bumping the common share dividend to 90 cents. At that rate, the dividend annualizes to $3.60 and gives a yield of 8.2%. The increase marked the 56th dividend raise for the company in the last 52 years. Few div payers can match that record.

In an interesting note, Jefferies analyst Owen Bennett is not certain that Altria will keep to its stated path in regard to beer and e-cigs. He writes, “Despite MO outlining its commitment to ABI near-term at Q3, we believe it had to say this, and we aren’t convinced MO sees ABI as a better source of value creation. Strategically, assuming a Juul PMTA, which we think is coming, Juul can see significant growth, especially under MO control and with traction internationally, vapor is cannibalizing cigarettes so added incentive to own all the economics, and having full control can boost ESG credentials…”

“Another source of upside value where we believe the stock is getting zero credit currently is cannabis, and specifically US cannabis. Expected legislative developments before the mid-terms would allow MO to get exposure to US cannabis growth, either indirectly via Cronos, or even directly, which we would not rule out,” the analyst added.

To this end, Bennett puts a Buy rating on MO shares, and his $53 price target suggests a 24% upside for the year ahead. (To watch Bennett’s track record, click here)

With 9 recent reviews on record, including 7 Buys and 2 Holds, MO has earned its Strong Buy analyst consensus rating. The shares are selling for $42.64 and their $53.88 average price target implies ~26% upside from current levels. (See Altria stock analysis on TipRanks)

Enbridge, Inc. (ENB)

The second stock we’ll look at, Enbridge, is a giant in the North American energy sector, a $78 billion behemoth that controls 20% of the US natural gas market and is also the largest natural gas distributor in Canada. Overall, Enbridge’s market share in the North American gas sector is an impressive 25%, making it the third-largest gas utility company on the continent.

During the third quarter, Enbridge made a move to expand its overall position, and especially its position on the US Gulf Coast, by acquiring a major crude oil export facility at Corpus Christi, Texas. The facility in question (formerly the Ingleside Energy Center, now Enbridge Ingleside Energy Center {EIEC}), is the largest crude oil export terminal in North America and handles ~25% of all Gulf Coast crude exports. EIEC can store up to 15.6 million barrels of oil, and can export up to 1.5 million barrels daily. Enbridge paid $3 billion cash for the acquisition.

Early in November, Enbridge reported its 3Q21 numbers. A key point for investors is the C$2.3 billion in distributable cash flow ($1.8 billion in US currency), up 9.5% from the year before. This is the metric that feeds the company’s dividend, which is substantial. The company set the payment for December at 83.5 cents Canadian, or 65 cents American. At that rate, the dividend annualizes to US$2.60 and gives a yield of 7%.

Reviewing Enbridge’s position, Evercore analyst Todd Firestone wrote: “There are a lot of things we like… but we think the most important is what ENB does better than anyone in the midstream space, they give detail on long term capital deployment and attach a growth target with those outlays.”

“Yes, there are near term headwinds like narrow heavy diffs and FX impacts, but longer term we like the exposure to liquids pipes expansion potential combined with a US gas business and wind + solar as less risky ‘transition’ initiatives. We think that is a better way to think about how to make money in what is going to be an oil demand growth backdrop for the foreseeable future. It provides better optionality and more downside protection, in our view,” the analyst added.

Firestone has an Outperform (i.e. Buy) rating here, with a one-year price targe of $55 indicating room for a healthy 46% upside potential. (To watch Firestone’s track record, click here)

Overall, it’s clear that Wall Street is in broad agreement with Evercore’s bullish stance on ENB; the stock’s 14 recent reviews break down 11 to 3 in favor of Buy over Hold to support the Strong Buy consensus view. The average price target of $45.31 suggests the shares have ~21% upside from the current price of $37.54. (See ENB stock analysis on TipRanks)

To find good ideas for dividend 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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