Everybody has their crystal ball out, attempting to determine the place shares are going. The market’s current efficiency isn’t any information – shares rose sharply by most of this 12 months, however this August has seen a number of weeks of consecutive declines. Wanting ahead, each the bulls and bears can current strong arguments.
Marko Kolanovic, J.P. Morgan’s Chief World Market Strategist, sides with the latter, as he believes the market is on the verge of a downturn. Kolanovic notes that US households constructed up greater than $2 trillion in financial savings through the COVID interval, however they’ve since burned by these financial savings. Family liquidity, which is close to $1.4 trillion, is shedding worth as a result of persistent inflation. With out assist from these money property, Kolanovic says shopper spending is definite to path off.
“We stay of the view that lower-income cohorts are more and more coming beneath stress with fewer offsets and little signal of reduction from the excessive value of the capital surroundings,” Kolanovic mentioned. He additionally identified gathering headwinds, together with “an getting older enterprise cycle with very restrictive financial coverage, nonetheless rising value of capital, lapping of very straightforward fiscal coverage, [and] eroding shopper financial savings and family liquidity.”
Placing his view into numbers, Kolanovic believes that the S&P 500 will shut out this 12 months close to 4,200, reflecting a decline of 4.5% from present ranges.
If Kolanovic is true, then now’s the time to take defensive measures. The Avenue’s analysts are transferring in that course, tagging a number of high-yield dividend shares as engaging buys proper now. We’ve used the TipRanks platform to tug the main points on two current picks – Purchase-rated shares with dividend yields exceeding 15%. Let’s take a better look.
AGNC Funding (AGNC)
The primary dividend inventory we’re is AGNC, an actual property funding belief. REITs are perennial dividend champions, and AGNC is especially well-known for being a high-yield payer. The corporate focuses its operations on mortgage-backed safety investments, particularly within the MBS area of interest. As of June thirtieth, its portfolio was valued at $58 billion, together with $46.7 billion in residential mortgage-backed securities and $10.2 billion in to-be-announced positions.
The most important a part of AGNC’s portfolio is predicated on 30-year fastened mortgages, which represent round 92% of the corporate’s portfolio worth, equal to $53.4 billion.
In its 2Q23 monetary outcomes, reported final month, AGNC confirmed web curiosity revenue lack of $69 million. This represented a 121% decline year-over-year, and worse, got here in $436 million under the forecasts. The corporate’s complete web revenue, nevertheless, remained constructive at $255 million. On a per share foundation, the non-GAAP revenue was reported at 67 cents, or 4 cents higher than had been anticipated.
The constructive non-GAAP EPS greater than covers the corporate’s dividend, which is distributed month-to-month. The latest dividend was declared at 12 cents per share and is scheduled to be paid on September 12. This frequent share dividend annualizes to $1.44 and supplies a ahead yield of 15.2%.
This firm’s high-yield dividend caught the eye of BTIG analyst Eric Hagen, who writes, “Within the close to time period, we expect the $0.12 month-to-month dividend has assist with nominal MBS spreads above +150 bps and leverage round 7x… We nonetheless prefer it on a near-term foundation as a result of it’s an efficient option to be brief interest-rate volatility, with upside if volatility moderates and spreads tighten. We predict the frequent inventory is essentially the most engaging a part of the capital construction, though there might be much less draw back within the fixed-to-floating charge most well-liked if spreads revisit the wides round +190 bps, or if the yield curve turns into materially extra inverted.”
Hagen enhances his constructive stance with a Purchase score on AGNC shares and an $11.25 value goal that means an 19% upside potential for the following 12 months. Based mostly on the present dividend yield and the anticipated value appreciation, the inventory has ~34% potential complete return profile. (To observe Hagen’s observe document, click on right here)
Total, AGNC will get a Robust Purchase consensus score from the Avenue, based mostly on 8 current analyst opinions that embody 6 Buys and a pair of Holds. The shares are buying and selling for $9.45 and have a mean value goal of $10.71, implying ~13% one-year upside. (See AGNC inventory forecast)
AFC Gamma (AFCG)
Subsequent up is AFC Gamma, one other actual property funding belief – however with a twist. AFC Gamma’s main focus is on the hashish trade. Hashish corporations face excessive overhead prices, partially because of the substantial land necessities for his or her rising operations, whether or not indoor or outside. AFC Gamma focuses on providing a spread of economic actual property loans tailor-made to hashish companies, together with different monetary options equivalent to mortgage underwriting and financing. The corporate supplies direct lending and bridge loans spanning from $5 million to $100 million, and even greater.
Headquartered in Florida, AFC Gamma holds a major benefit when coping with the hashish trade. Regardless of remaining unlawful beneath Federal legislation, hashish has been legalized for both medical or medical/leisure use in 38 states, with Florida being a distinguished chief amongst them. Working from its Florida base, AFC Gamma can provide monetary companies to an trade navigating a fancy and ranging authorized panorama.
The corporate’s success in assembly the wants of its target market and leveraging that success for earnings is obvious in its second-quarter 2023 outcomes. AFC Gamma reported a Q2 GAAP web revenue of $12.1 million, translating to 59 cents per frequent share. This exceeded estimates by 6 cents per share. Digging deeper, the corporate achieved a distributable revenue of $9.9 million, or 49 cents per frequent share. That is noteworthy for dividend buyers, because it immediately helps the dividend funds.
That frequent share dividend was final declared for 48 cents per share, giving an annualized charge of 15.7%. AFC Gamma paid out a complete of $9.8 million in dividend distributions for Q2, though you will need to notice that the Q2 fee was diminished from the earlier quarter.
Regardless of the discount within the dividend, the excessive yield and the corporate’s general soundness attracted 5-star analyst Mark Smith. Protecting the inventory for Lake Avenue, Smith says of AFC Gamma, “We predict the corporate stays in a wholesome state with excessive yield to maturity (21% at quarter finish) and a wholesome stability sheet. We predict the corporate is at present cleansing up and de-risking the portfolio which can take one other quarter or two, however we expect there are development alternatives on the horizon.”
Describing these alternatives, Smith provides, “We predict the corporate will get extra lively in lending into the hashish trade in addition to the industrial actual property markets over the following few quarters. Nonetheless, we trimmed our estimates because of the smaller dimension of the portfolio right now. We predict yields are robust and the corporate is starting to see higher alternatives. We like that administration is targeted on producing robust risk-adjusted returns and has ample capital obtainable to provide robust development… We predict the dividend will return to development and assume the shares are attractively priced given the present yield.”
The extent of Smith’s optimism right here may be seen in his Purchase score and the $25 value goal that signifies his confidence in a sturdy 104% upside mendacity in watch for the inventory. (To observe Smith’s observe document, click on right here)
Smith represents the bullish finish of opinion on AFCG; general, AFC Gamma has a Average Purchase score from the Avenue, based mostly on 2 Buys and 1 Maintain set in current weeks. The shares are buying and selling for $12.20 and the typical value goal is $19.50, suggesting a one-year achieve of ~60%. With the excessive dividend yield, this inventory’s complete return potential can strategy 75%.(See AFCG inventory forecast)
To search out good concepts for shares buying and selling at engaging valuations, go to TipRanks’ Greatest Shares to Purchase, a instrument 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 necessary to do your individual evaluation earlier than making any funding.