Billionaire Howard Marks Is Holding These 2 Dividend Stocks for Income Growth — Including One With 11% Yield

With the Federal Reserve having raised short-term fed fund charges 11 occasions over the previous 18 months, bringing them to a spread between 5.25% and 5.5% – their highest ranges in 22 years – these aggressive actions are yielding outcomes. Inflation has continued to chill down all through this 12 months, with the annual development of the patron value index falling to three% in June, marking its lowest level since March 2021.

Nonetheless, regardless of these constructive outcomes, billionaire investor Howard Marks is sounding a warning for U.S. corporations. In a latest Bloomberg interview, the co-founder of $179 billion Oaktree Capital Administration cautioned that these sky-high rate of interest hikes are about to hit companies arduous. He anticipates that extra corporations are prone to default on their debt repayments as borrowing money has develop into considerably dearer.

“Once you undergo a interval when it’s tremendous straightforward to boost cash for any function or no function, and also you go right into a interval when it’s tough to boost cash even for an excellent function, clearly many extra corporations are going to founder,” Marks opined.

Whereas Marks is nervous in regards to the financial influence of high-interest charges, his funding portfolio suggests he’s well-positioned to navigate additional financial challenges. Marks has substantial holdings in two high-yield dividend shares, certainly one of which provides a stable 11% yield.

Actually, it’s not solely Marks who favors these names. Utilizing the TipRanks database, we discovered that each are additionally rated as ‘Sturdy Buys’ by the analyst consensus. Let’s take a more in-depth look.

Sitio Royalties Corp. (STR)

For our first Marks-endorsed title, we’ll get the lowdown on Sitio Royalties, an organization that makes a speciality of the administration and monetization of mineral and royalty pursuits within the power sector.

Its core enterprise mannequin revolves round buying and holding pursuits in oil, pure gasoline, and mineral rights, permitting the corporate to profit from the manufacturing and exploration actions of power corporations. By leveraging its intensive data of the power trade, Sitio strategically invests in properties with important useful resource potential, producing a gentle stream of revenue by way of royalty funds.

Specializing in high-quality U.S. basins, to-date, the agency has notched over 190 acquisitions, with loads of exercise additionally happening this 12 months. On the latest Q2 earnings name, the corporate stated that because the finish of Q1, it had closed a number of accretive Permian Basin acquisitions for a complete of $247.9 million. Sitio made these acquisitions with 27% fairness and 73% money.

The most recent readout wasn’t wholly constructive, nonetheless. Whereas income elevated by 50.2% year-over-year to $136.46 million, it fell wanting consensus expectations by $8.84 million. Moreover, on account of a $25.6 million non-cash impairment cost, the corporate recorded a web lack of $3.0 million within the quarter, a $50.7 million drop in comparison with 1Q. The corporate additionally lowered its dividend payout from $0.50 per share to $0.40, though that also yields a pleasant 6.07%.

In the meantime, Marks stays closely invested right here. He owns 12,935,120 STR shares, which at the moment command a market worth of about $341 million.

Stifel analyst Derrick Whitfield can be on board and sees a lot to love in regards to the agency. He writes, “In our view, Sitio provides buyers publicity to the very best geology within the Decrease 48 whereas sustaining geographic and operator diversification. Qualitatively, Sitio provides buyers scale and a differentiated deal with buying minerals within the core of main oil basins with the bottom value of provide underneath high quality operators. In our view, the corporate’s extremely focused acquisition technique offers it with advantaged visibility into the prospects of near- and medium-term improvement regardless of commodity volatility and political atmosphere.”

“Quantitatively, we estimate Sitio can return 100% of its enterprise worth by 2030, providing important worth now and potential upside sooner or later. General, the corporate’s technical experience and skill to reap the benefits of accretive offers within the close to time period with floor recreation capital present a differentiated funding alternative,” Whitfield additional added.

Accordingly, Whitfield charges the shares a Purchase, whereas his $33 value goal makes room for 12-month returns of 25%. Primarily based on the present dividend yield and the anticipated value appreciation, the inventory has ~31% potential whole return profile (To observe Whitfield’s observe report, click on right here)

General, two different analysts have lately chimed in with STR evaluations, and each are additionally constructive, making the consensus view right here a Sturdy Purchase. The $32 common goal is just barely decrease than Whitfield’s goal and represents upside of 21% from present ranges. (See STR inventory forecast)

Oaktree Specialty Lending (OCSL)

Subsequent up on our Marks-backed checklist, we’ve Oaktree Specialty Lending. As its title implies, this enterprise improvement firm (BDC) operates on the planet of specialty finance and lending, primarily specializing in offering personalized financing options to middle-market corporations in varied industries.

As its title additionally suggests, it’s managed by Oaktree Capital Administration, based by Howard Marks, who took over the BDC in October 2017. Marks’ holdings right here stand at 1,852,456 shares, representing over $37.4 million on the present share value.

The corporate’s funding portfolio encompasses a variety of debt devices, together with senior secured loans, subordinated debt, and fairness co-investments, permitting it to tailor its financing choices to satisfy the particular wants of its shoppers. OCSL has a various mixture of corporations in its portfolio, with software program main the best way at 18%, adopted by specialty retail at 5.2% and actual property administration at 4.4%.

On the monetary facet, given a rise in non-accrual investments, its credit score metrics suffered within the lately reported fiscal third quarter (June quarter). Though whole funding revenue rose by 61.5% year-over-year to $101.9 million, the determine simply missed Avenue expectations – by $0.73 million. Adj. EPS of $0.62 additionally barely missed the analysts’ forecast by $0.01.

Nonetheless, that also managed to cowl the principle attraction right here: a really juicy dividend. The quarterly payout at the moment stands at $0.55, providing a yield of ~11%.

Whereas cognizant of the problems that barely marred the Q2 efficiency, KBW analyst Ryan Lynch factors out why this inventory deserves a more in-depth look.

“OCSL generated a robust working ROE of 12.6% and a wholesome web revenue ROE of 9.7%, regardless of a small uptick in nonaccruals,” Lynch defined. “Whereas OCSL has added a couple of non-accruals over the previous two quarters, we’ve confidence within the power of their platform and historic underwriting…  Oaktree has a robust, deep, and profitable observe report navigating and investing in difficult occasions, which bodes effectively for navigating this unsure atmosphere.”

These feedback underpin Lynch’s Outperform (i.e., Purchase) ranking on OCSL, which is backed by a $22 value goal. The determine suggests shares will climb ~9% greater within the months forward. (To observe Lynch’s observe report, click on right here)

General, OCSL shares garner a Sturdy Purchase consensus ranking, primarily based on 3 Buys vs. 1 Maintain. Whereas the $21.38 common goal implies solely modest positive aspects of 6% for the 12 months forward, with the addition of an ~11% yield, that determine rises to a extra respectable 17%. (See OCSL inventory forecast)

To search out good concepts for dividend shares buying and selling at engaging valuations, go to TipRanks’ Finest Shares to Purchase, a newly launched device that unites all of TipRanks’ fairness insights.

Disclaimer: The opinions expressed on this article are solely these of the featured analysts. The content material is meant for use for informational functions solely. It is vitally vital to do your individual evaluation earlier than making any funding.

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