In this article, we discuss 11 extreme dividend stocks with upside potential. You can skip our detailed analysis of dividend stocks and their historical performance, and go directly to read 5 Extreme Dividend Stocks With Upside Potential.
In the current inflationary environment, dividend stocks help reduce a portfolio’s volatility and provide a hedge against inflation. Companies that have raised their dividends over time become top choices for investors as they can generate regular income for them. Moreover, investors can also grow their income through investing in these companies as they consistently raise their payouts. The S&P 500 Dividend Aristocrats Index, which represents companies that have raised their payouts for 25 years or more, has outperformed the broader market by over 75% from 1989 through January 2023, as reported by T. Rowe Price.
In addition to dividend growers, high-dividend stocks are also popular among investors considering their historical performance during market downturns. According to a report by Charles Schwab, high-dividend payers outperformed their peers in every recessionary period in the past 50 years, except for the Global Financial Crisis of 2008. The report revealed that the MSCI World High Dividend Yield Index returned 6% from 1976 to 1978, compared with a 4.2% decline in the MSCI World Index. The report also mentioned that in 2022 through July, both the S&P 500 High Dividend Index and MSCI Europe High Dividend Index delivered positive returns, versus a 13% decline in the S&P 500.
The significance of dividend stocks is evident from their contribution to overall market returns over the years. Moreover, reinvesting dividends can also boost shareholders’ investments over time. According to a report by T. Rowe Price Group, compounded dividends have represented over 70% of global equity returns since 1970. The report also explored other markets as well and revealed that dividends represented over 46% of the market’s total returns in Europe since 1999.
Considering the strong performance of dividend equities over the years, analysts also recommend loading up on these stocks, especially when inflation is high. Ramona Persaud, manager of the Fidelity Equity-Income Fund and Fidelity Global Equity Income Fund, gave her views on dividend investing to the financial services company in March. She said:
“I really like dividend stocks in this environment, since these are typically companies that have pricing power that can offer inflation protection and the ability to sustain dividends.”
She further mentioned that while investing in dividend stocks, the main focus should be on the respective company’s financial strength and its ability to maintain and grow its dividends. Some of these companies include The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), and Johnson & Johnson (NYSE:JNJ).
With this context in mind, we will discuss extreme dividend stocks with upside potential in this article.
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Our Methodology:
We selected companies that have been paying regular dividends to shareholders and have yields above 6%, as of March 21. From that list, we shortlisted stocks that have an upside potential above 20% based on their current share price and their average price targets. The stocks are ranked in ascending order of the upside potential as of March 21.
11 Extreme Dividend Stocks With Upside Potential
11. Verizon Communications Inc. (NYSE:VZ)
Upside Potential as of March 21: 20.6%
Dividend Yield as of March 21: 6.96%
Verizon Communications Inc. (NYSE:VZ) is a New York-based multinational telecommunications company that offers voice, data, and video services to its consumers. The company is collaborating with Netflix to bring back a joint promotion offering the streaming service free for one year for the telecom’s customers.
On March 2, Verizon Communications Inc. (NYSE:VZ) declared a quarterly dividend of $0.6525 per share, which fell in line with its previous dividend. The company is one of the best dividend stocks on our list as it has raised its payouts for 16 years in a row. The stock has a dividend yield of 6.96%, as of March 21. The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), and Johnson & Johnson (NYSE:JNJ) are some other popular dividend stocks for income investors.
In January, Citigroup raised its price target on Verizon Communications Inc. (NYSE:VZ) to $42 and maintained a Neutral rating on the shares, following the company’s recent quarterly earnings.
At the end of Q4 2022, Verizon Communications Inc. (NYSE:VZ) was a part of 56 hedge fund portfolios, as per Insider Monkey’s data. The stakes owned by these funds have a total value of over $1.5 billion. Diamond Hill Capital was one of the company’s leading stakeholders in Q4.
Mawer Investment Management mentioned Verizon Communications Inc. (NYSE:VZ) in its Q3 2022 investor letter. Here is what the firm has to say:
“There are a few other segments of our portfolios that displayed weakness in the quarter. Cable and telecommunication companies have been an area that has lagged the broader market as their worlds are increasingly colliding. Companies such as Verizon (NYSE:VZ) has been impacted as wireless operator is spending heavily to attract internet subscribers with fixed wired access and the cable companies are trying to build wireless businesses.”
10. Chimera Investment Corporation (NYSE:CIM)
Upside Potential as of March 21: 22.84%
Dividend Yield as of March 21: 16.7%
Chimera Investment Corporation (NYSE:CIM) is an American real estate investment trust company that mainly focuses on residential mortgage loans and asset securitization. The company currently offers a quarterly dividend of $0.23 per share and has a dividend yield of 16.7%, as of March 21. It is among the best dividend stocks on our list.
As of January 31, Chimera Investment Corporation (NYSE:CIM) had over $365 million available in cash and its total assets amounted to over $13.4 billion. The company’s revenue for the fourth quarter of 2022 came in at over $80.4 million.
In March, Credit Suisse maintained a Neutral rating on Chimera Investment Corporation (NYSE:CIM) with a $6.50 price target, appreciating the company’s performance last year.
At the end of Q4 2022, Ken Griffin and David Costen Haley were some of the major stakeholders of Chimera Investment Corporation (NYSE:CIM). Overall, 15 hedge funds in Insider Monkey’s database owned stakes in the company, worth over $8.4 million collectively.
9. Kinder Morgan, Inc. (NYSE:KMI)
Upside Potential as of March 21: 23.9%
Dividend Yield as of March 21: 6.64%
Kinder Morgan, Inc. (NYSE:KMI) is one of North America’s largest energy infrastructure companies. The company recently said that its El Paso pipeline that supplies natural gas to California has completed restart activities and will return to service. The supply in the region would increase by 600M cf per day.
Kinder Morgan, Inc. (NYSE:KMI) is one of the best dividend stocks on our list as it has raised its payouts for consecutive 5 years. The company currently pays a quarterly dividend of $0.2775 per share and has a dividend yield of 6.64%, as of March 21.
Bernstein upgraded Kinder Morgan, Inc. (NYSE:KMI) to Overweight in March and also raised its price target on the stock to $22. The firm appreciated the company’s management of its operations.
As per Insider Monkey’s database, 34 hedge funds were long Kinder Morgan, Inc. (NYSE:KMI) in Q4 2022, owning shares worth over $1.11 billion collectively. With over 25.8 million shares, Orbis Investment Management was the company’s leading stakeholder in Q4.
8. Enterprise Products Partners L.P. (NYSE:EPD)
Upside Potential as of March 21: 27.8%
Dividend Yield as of March 21: 7.78%
Enterprise Products Partners L.P. (NYSE:EPD) is a Texas-based crude oil and midstream natural gas company that also specializes in refined products and petrochemicals. In the fourth quarter of 2022, the company generated over $13.6 billion in revenue, which showed a 20% growth from the same period last year. The company’s distributable cash flow for FY22 came in at $7.8 billion, up from $6.6 billion in the prior-year period.
Enterprise Products Partners L.P. (NYSE:EPD), one of the best dividend stocks on our list, currently pays a quarterly dividend of $0.49 per share, having raised it by 3.2% in January. The company maintains a 23-year streak of dividend growth. The stock has a dividend yield of 7.78%, as of March 21.
Scotiabank initiated its coverage on Enterprise Products Partners L.P. (NYSE:EPD) with an Outperform rating and a $31 price target, presenting a positive stance on the sector.
Insider Monkey’s Q4 2022 database shows that 24 hedge funds owned stakes in Enterprise Products Partners L.P. (NYSE:EPD), up from 21 in the previous quarter. These stakes have a collective value of over $242.4 million.
Legacy Ridge Capital Management, LLC mentioned Enterprise Products Partners L.P. (NYSE:EPD) in its Q4 2022 investor letter. Here is what the firm has to say:
“Enterprise Products Partners L.P. (NYSE:EPD) is still owned in the fund and remains one of our largest positions, as it has been since the partnership was founded. This has not been a great investment. Shares are down about 6% since I first wrote about it. However, we have received $8.93 per share in dividends, which is about 34% of the 2018 share price. So, with dividends included we’ve made 28% cumulatively over 5-years. Still not good, but not an impairment of capital either.
Since 2018, EPD’s dividend yield has gone from 6.5% to 8% with the annual per share payout growing from $1.72 to $1.96, +14%. The pace of dividend growth has recently increased from about 2% to 5%+. Additionally, Distributable Cash Flow per share (what could be paid to us if management wanted to) has increased 22%, from $2.73 to $3.33, while leverage has come down a little over ½ a turn. So, the balance sheet and cash flow metrics are in better shape than they were 5-years ago, and they were pretty good 5-years ago.
The competitive dominance of the asset base, industry leading low leverage, and a founding family with multiple billions of dollars invested alongside us keep it a core holding in the portfolio. We’ll continue to own this company unless the shares become meaningfully overvalued, and if it gets cheaper, we would be very comfortable owning more.”
7. Capital Southwest Corporation (NASDAQ:CSWC)
Upside Potential as of March 21: 28.5%
Dividend Yield as of March 21: 12.31%
An American capital market company, Capital Southwest Corporation (NASDAQ:CSWC) is next on our list of the best dividend stocks. The company currently offers a quarterly dividend of $0.53 per share for a dividend yield of 12.31%, as of March 21. On January 30, it also announced a supplemental dividend of $0.05 per share.
Following the company’s recent quarterly results, B. Riley raised its price target on Capital Southwest Corporation (NASDAQ:CSWC) to $21.50 and maintained a Buy rating on the shares. The firm also noted the company’s growing payouts.
At the end of Q4 2022, 8 hedge funds tracked by Insider Monkey owned stakes in Capital Southwest Corporation (NASDAQ:CSWC), compared with 9 a quarter earlier. These stakes have a collective value of over $33.4 million.
6. Arbor Realty Trust, Inc. (NYSE:ABR)
Upside Potential as of March 21: 33.7%
Dividend Yield as of March 21: 13.38%
Arbor Realty Trust, Inc. (NYSE:ABR) is a New York-based real estate investment trust company that provides debt capital for commercial real estate industries. The company experienced a positive hedge fund sentiment in Q4 2022, as 17 funds in Insider Monkey’s database owned stakes in ABR, compared with 13 in the previous quarter. The collective value of these stakes is nearly $68.5 million.
In the fourth quarter of 2022, Arbor Realty Trust, Inc. (NYSE:ABR) reported revenue of $113 million, which was up by 48% from the same period last year. The company’s cash position remained strong as it had over $534.3 million available in cash and cash equivalents at the end of December 2022, compared with $404.5 million in 2021.
Arbor Realty Trust, Inc. (NYSE:ABR) currently offers a quarterly dividend of $0.40 per share for a dividend yield of 13.38%, as of March 21. The company maintains a 10-year streak of consistent dividend growth, coming through as one of the best dividend stocks on our list. It can be added to dividend portfolios alongside popular dividend stocks like The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), and Johnson & Johnson (NYSE:JNJ).
Click to continue reading and see 5 Extreme Dividend Stocks With Upside Potential.
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Disclosure. None. 11 Extreme Dividend Stocks With Upside Potential is originally published on Insider Monkey.