According to the latest CPI (Consumer Price Index) report, US inflation has cooled slightly since July, but not enough to calm markets.
Overall, prices rose 8.3% from the same period last year, slowing from an 8.5% rise in July and further down from June’s 40-year peak of 9.1%. On a monthly basis, after a plateau in July, consumer prices rose 0.1%.
With expectations for growth of 8.1% from last year and a decline of 0.1% from last month, the markets did what they like to do in such a situation – they fell significantly.
The latest setback is not what stranded investors were hoping for, as they thought the worst of the bear market was behind us. However, according to Laurie Calvasina, head of US equity strategy at RBC, the bottom may indeed have already arrived, but that still doesn’t mean it’s all going to be okay from here on out.
“In terms of stock market direction, we think it’s more likely that US equities bottomed out in mid-June, but we expect conditions to change again in the coming months with the risk that the S&P 500 will retest its lows since early the year in late 3Q,” Calvasina said.
Given this situation, investors would do well to play defensively, and RBC analysts point to some high-dividend stocks for just that. These are div players offering returns of 8% or better and acc TipRanks database, both have a consensus rating of Strong Buy from the broader analyst community. Let’s take a closer look.
Blackstone Secured Credit Fund (BXSL)
The name “Blackstone” is easily recognized; it is one of the largest asset management firms in the world today. Blackstone Secured Lending Fund, the first stock we’ll look at, is managed by the eponymous firm and has been operating since 2018 as a business development company with a portfolio of senior secured debt in US private companies.
Going into detail, the company’s portfolio investments are worth $10.1 billion at fair value and are mainly focused on software and healthcare providers, which together make up 27.5% of the total. The remaining investments include professional services, trade services and insurance, which make up another 22.5%. Most of the portfolio’s investments are in the US, although about 5.23% are in Canadian companies.
BXSL posted $105 million in net investment income in the second quarter, the third reported quarter since it went public last October. That income came to 62 cents per share and was enough to cover a dividend of 60 cents per common share announced last week to be paid in November. The dividend currently yields 10%, well over 4 times the average dividend yield among comparable companies.
RBC 5 Star Analyst Kenneth Lee follows BXSL and is impressed with this company’s performance – and its potential to win in a rising interest rate environment. This will have the added benefit for investors of potentially leading to higher dividends – a key point when current yields are already beating inflation.
“We continue to support BXSL’s conservative risk profile, especially against the current macro backdrop; potential to widen dividend coverage in nt as NII is boosted by rising rates… Management indicated that if BXSL had benefited from higher rates at the end of the quarter, for the full quarter NII would have been 11c higher. Looking ahead, the sensitivity of the rate is such that any 100bps increase in the June 30 rate would translate into roughly a 9c/sh increase in the quarterly NII. Therefore, management believes that dividend coverage can increase,” Lee wrote.
All of this strongly supports Lee’s Outperform (ie, Buy) rating on the stock. Its price target, set at $29, suggests that BXSL will gain ~20% over the next year. Based on the current dividend yield and expected price appreciation, the stock has a ~30% potential total return profile. (To watch Lee’s record, Press here)
BXSL has been public for less than a year and has 6 Wall Street reviews on record. These include 5 Buy vs 1 Hold, for a consensus view of Strong Buy. Shares are trading at $24.23 and the average price target of $27 suggests ~11% upside from this level. (Check out the BXSL stock forecast at TipRanks)
The next dividend stock we’ll look at is Sunoco, a master limited partnership (MLP) and the largest independent motor fuel distributor in the US. Sunoco’s fuel products are purchased from refineries and wholesaled to approximately 10,000 stores, independent dealers, commercial customers and distributors – the majority of which are owned and operated by third parties. To give you an idea of the size we’re talking about here, in 2Q22 the partnership sold approximately 2 billion gallons of fuel, a 3% increase over 2Q21.
The results were released early last month and showed revenue rose 78.1% year over year to $7.82 billion, beating the Street’s call for $5.63 billion. There was rhythm on the bottom line as well, with EPS of $1.20 beating analysts’ estimate of $1.06. The company also stuck to its full-year 2022 adjusted EBITDA guidance of $795 million to $835 million.
As for the dividend, the quarterly payout stands at $0.82, yielding a handsome 8.34% – just above the sector average of 1.64%.
Sunoco’s business is based on the transportation of fossil fuels, and with climate change on the agenda and the auto industry expected to shift heavily to electric vehicles in the coming years, there could be long-term implications for that segment.
However, it may take some time before the full transition takes place and in meeting this RBC stockpile, Elvira Scotto applauds a model that “keeps working.”
“SUN reported solid 2Q22 results that slightly beat expectations and maintained its full-year 2022 outlook,” the 5-star analyst wrote. “The second quarter results again highlight the sustainability of SUN’s model. We believe SUN is showing investors significant current earnings with an improved balance sheet. We expect SUN to maintain its distribution and expect distribution to improve over time.”
These comments underpin Scotto’s Outperform (i.e., Buy) rating, while her $48 price target gives room for one-year gains of 21%. (To watch Scotto’s record, Press here)
The rest of the street thinks the same. The other 4 recent analyst reviews are all positive, consolidating into a consensus rating of Strong Buy. Given the average price target of $47, the stock is expected to deliver a return of ~19% in the coming months. (Check out the Sunoco stock forecast at TipRanks)
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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.