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2 Big Dividend Stocks Yielding at Least 7%; Raymond James Says ‘Buy’

For investors seeking a strong dividend player, there are some market segments that are known for their high-yield dividends, making them logical places to start looking for reliable payers. The hydrocarbon sector, oil and gas production and mainstreaming, is one of these. The sector deals in a products that’s essential – our world runs on oil and its by-products. And while overhead for energy companies is high, they still have a market for their deliverables, leading to a ready cash flow – which can be used, among other things, to pay the dividends. All of this has investment firm Raymond James looking to the roster oil and gas midstream companies for dividend stocks with growth potential. “We anticipate the [midstream] group will add around ~1 turn to its average EV/EBITDA multiple this year. This equates to a ~20-25% move in equity value,” Raymond James analyst Justin Jenkins noted. Jenkins outlined a series of points leading to a midstream recovery in 2021, which include the shift from ‘lockdown’ to ‘reopen’ policies; a general boost on the way for commodities, as the economy picks up; a political point, that some of DC’s more traditional centrists are unlikely to vote in favor of anti-oil, Green New Deal policies; and finally, with stock values relatively low, the dividend yields are high. A look into the TipRanks database reveals two midstream companies that have come to Raymond James’ attention – for all of the points noted above. These are stocks with a specific set of clear attributes: a dividend yield of 7% or higher and Buy ratings. MPLX LP (MPLX) MPLX, which spun off of Marathon Petroleum eight years ago as a separate midstream entity, acquires, owns, and operates a series of midstream assets, including pipelines, terminals, refineries, and river shipping. MPLX’s main areas of operations are in the northern Rocky Mountains, and in the Midwest and stretching south to the Gulf of Mexico coast. Revenue reports through the ‘corona year’ of 2020 show the value potential of oil and gas midstreaming. The company reported $2.18 billion at the top line in Q1, $1.99 billion in Q2, and $2.16 billion in Q3; earnings turned negative in Q1, but were positive in both subsequent quarters. The Q3 report also showed $1.2 billion in net cash generated, more than enough to cover the company’s dividend distribution. MPLX pays out 68.75 cents per common share quarterly, or $2.75 annualized, which gives the dividend a high yield of 11.9%. The company has a diversified set of midstream operations, and strong cash generation, factors leading Raymond James’ Justin Jenkins to upgrade his stance on MPLX from Neutral to Outperform (i.e. Buy). His price target, at $28, implies a 22% one-year upside for the shares. (To watch Jenkins’ track record, click here) Backing his stance, Jenkins writes, “Given the number of ‘boxes’ that the story for MPLX can check, it’s no surprise that it’s been a debate stock. With exposure to inflecting G&P trends, an expected refining/refined product volume recovery, the story hits many operational boxes – while also straddling several financial debates… We also think solid 2020 financial results should give longer-term confidence…” Turning now to the rest of the Street, it appears that other analysts are generally on the same page. With 6 Buys and 2 Holds assigned in the last three months, the consensus rating comes in as a Strong Buy. In addition, the $26.71 average price target puts the upside at ~17%. (See MPLX stock analysis on TipRanks) DCP Midstream Partners (DCP) Based in Denver, Colorado, the next stock is one of the country’s largest natural gas midstream operators. DCP controls a network of gas pipelines, hubs, storage facilities, and plants stretching between the Rocky Mountain, Midcontinent, and Permian Basin production areas and the Gulf Coast of Texas and Louisiana. The company also operates in the Antrim gas region of Michigan. In the most recent reported quarter – 3Q20 – DCP gathered and processed 4.5 billion cubic feet of gas per day, along with 375 thousand barrels of natural gas liquids. The company also reported $268 million in net cash generated, of which $130 million was free cash flow. The company reduced its debt load by $156 million in the quarter, and showed a 17% reduction in operating costs year-over-year. All of this allowed DCP to maintain its dividend at 39 cents per share. Early in the corona crisis, the company had to cut back that payment – but only once. The recently declared 4Q20 dividend is the fourth in a row at 39 cents per common share. The annualized rate of $1.56 gives a respectable yield of 7.8%. This is another stock that gets an upgrade from Raymond James. Analyst James Weston bumps this stock up from Neutral to Outperform (i.e. Buy), while setting a $24 target price to imply 20% growth on the one-year time horizon. “[We] expect DCP to post yet another solid quarter on sequential improvements in NGL prices, NGL market volatility, and positive upstream trends… we are not capitalizing current propane prices and anticipate a solid, but more normalized pricing regime over the next 12-18 months. In our view, this will create a beneficial operating environment for DCP cash flows that is not currently reflected in Street estimates,” Weston noted. All in all, the Moderate Buy analyst consensus rating on DCP is based on 7 recent reviews, breaking down 4 to 3 Buy versus Hold. Shares are priced at $19.58 and the average target of $23 suggests an upside of ~15% from that level. (See DCP 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.