Markets continued their upward trend last week, gaining ground since the November 3 vote. There is an optimistic view that politics will settle into a more normal pattern with a new Administration.
Even so, investors have been wary this past autumn – as there is plenty to be wary about. The coronavirus has started a comeback with the advent of cooler weather, and the political uncertainty that surrounded the election has left the status of further economic stimulus packages in limbo.
It’s times like these that investors start taking a renewed interest in dividend stocks. These are the classic defensive stocks, and for good reason: a reliable dividend keeps the income flowing, no matter what the markets do.
Wall Street analysts have chimed in – and they are recommending high-yield dividend stocks for investors looking to find protection for their portfolio. Here, we’ll take a look at three stocks that fit a profile: a Strong Buy rating from the analyst community, and a dividend yield that gives at least 10%.
Stellus Capital (NYSE:SCM)
Stellus Capital offers capital solutions (read: debt financing) for companies in the lower mid-market range. These are companies that may have difficulty accessing capital through large banks; Stellus shoulders the higher risk as an investment opportunity. The capital company’s portfolio includes 67 companies, $1.6 billion in assets under management, and over $6 billion in total funds invested.
Stellus has been raising its dividend payment this year. The next dividend has already been declared for December, and shows an effective increase to 31 cents per common share. This comes from combining the regular 25 cent payment with a special 6-cent dividend, and after the company paid out 25 cents per share in the previous two quarters. Counting the regular dividend, the payment annualizes to $1 per common share, and gives a yield of 10.91%.
Writing from Raymond James, analyst Robert Dodd says, “Core earnings covered the base dividend in 3Q20, and a strong spillover position should cushion the dividend in 2021. We continue to view the risk /reward attractively.”
The analyst added, “The SCM pipeline looks robust, with ~10 portfolio companies going through various stages of due diligence. Repayments in 4Q20 could be as high as $30M – with a modest positive impact to NAV from exits above fair value marks at 3Q20.”
To this end, Dodd rates SCM shares an Outperform (i.e. Buy) along with a $11 price target. This figure implies a 17% upside from current levels.
Overall, Stellus’ Strong Buy analyst consensus rating is based on 4 reviews, including 3 Buys and 1 Hold. The stock is selling for $9.43 and its average price target of $10.17 suggests it has a one-year upside potential of ~8%.
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