Let’s talk about rising markets, and whether or not to buy in. That’s the question that investors need to consider right now, as the major indexes have hit record highs – but the economy is flashing signs of concern for those who care to look.
Inflation continues to rise, and the 10-year Treasury bond yield, which had risen above 1.5%, has slipped to 1.4% and is trending down. Investors are seeking returns, and so are drawn to the stock markets; they’re banking that central banks will keep interest rates low at least for the near-term.
Watching the markets from Wall Street, the major banking firms are finding it hard to come to agreement. There are bulls who say, ‘Buy,’ but the bears are active, too. On that latter note, Morgan Stanley’s CIO of wealth management, Lisa Shalett, writes: “Surprisingly weak low-end consumer confidence, a recent downturn in CFO optimism, a quickly normalizing savings rate and anxious mood in the political arena suggest that all is not Goldilocks. We believe risks of a market bubble are growing, mitigating forward returns.”
All of this adds up to a market environment that lends itself to defensive stock plays, as a hedge against uncertainty. And that, of course, brings us to dividend stocks. These are the classic defensive plays, giving investors a dual path toward returns, from both the share appreciation and the dividend payments.
Using TipRanks’ database, we’ve pulled up the info on two dividend stocks that recently gotten some love from the Street’s stock watchers. These are stocks with Strong Buy consensus ratings from the Street, and dividend yields at ~8%. Here are the details.
Owl Rock Capital Corporation (ORCC)
We’ll start in the financial sector, with Owl Rock Capital. This company is a mid-market financing specialist, one of the many such companies that gives small- and mid-market companies access to credit and loan facilities outside of the main banking sector. Firms like Owl Rock are essential in the economic system, as they are in a sense the lifeblood of small and medium enterprises – which in turn are the engine of US job creation. Owl Rock has a portfolio including over $12.6 billion in total assets, and investments in 129 companies.
Earlier this month, Owl Rock released its 3Q21 numbers, and the results are of interest to investors. The company showed a total investment income of $269.2 million, up an impressive 43% year-over-year. EPS came in at 33 cents, flat yoy but up 6.4% sequentially. Owl Rock made $2.794 billion in new investments during the quarter, in 34 companies. These included 21 companies new to ORCC’s portfolio, and 13 existing investments.
On the balance sheet, Owl Rock reported $794.7 million in total cash assets, along with $1.6 billion in undrawn credit. This stands against $7 billion in outstanding debt principal. The company’s cash assets grew 26% from the end of Q2.
Owl Rock has already declared its Q4 dividend, at 31 cents per common share. This will mark the fourth consecutive quarter at this payment level. The $1.24 annualized payment makes a yield of 8.5%, far higher than Treasury bonds, and more than 4x the average dividend yield found among S&P-listed companies.
JMP’s 5-star analyst Devin Ryan is impressed with Owl Rock’s execution in recent months, writing, “Over the past five quarters, management consistently communicated to investors an expectation for net investment income to cover the dividend in 2H21. We are pleased to see the significant progress made over that period to fully ramp the investment portfolio, and expect the BDC to continue fully earning the dividend going forward. Heading into year-end, the company has a strong backlog of deals expected to close during the quarter, which should enable the BDC to maintain a fully invested portfolio during a period of heightened repayment activity. In short, we expect Owl Rock to outperform as it operates at optimal scale.”
Ryan’s comments support his Outperform (i.e. Buy) rating on the stock, and his $16 price target suggests an upside of 10.5% in the year ahead. Based on the current dividend yield and the expected price appreciation, the stock has ~19% potential total return profile. (To watch Ryan’s track record, click here)
Overall, Owl Rock gets a unanimous Strong Buy rating from the analyst consensus, with 3 positive reviews set in recent weeks. The shares are priced at $14.50 and their $16 average target matches Ryan’s, for a 10% upside potential over the next 12 months. (See ORCC stock analysis on TipRanks)
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