Investment bank JPMorgan has cast a careful eye on current market conditions, and lays out the likely scenarios for investors to consider. According to the firm’s analyst team, the spreading COVID -19 epidemic will likely continue to disrupt markets, mainly through increased volatility this year. In the short term, JPM sees the US Federal Reserve’s 50 basis point rate cut as a net positive, mainly because it increases the relative upside for equity assets.
In JPM’s view, investors should understand that governments will provide policy support in the first half of this year to mitigate virus-related losses, while the global epidemic will probably not cause a sustained drop in business sentiment
For now, JPM’s Global Equity strategists see the current market as oversold, but believe that disease-related economic slowdown will continue to pressure stocks. They see a bounce as likely, given low prices and the likelihood that investors will use any sign of strength to buy in. With rates cut back again, and the Fed considering further cuts, equities will remain the asset with the highest potential upside despite their risk. Investors should look for them to continue outperforming bonds going forward.
Now could be the right time to buy into dividend stocks. These defensive plays will provide the regular income needed to support portfolios against the market’s gyrations. With all of that in mind, we’ve used TipRanks’ Stock Screener to pull high-yield dividend stocks from the database. All three are Buy-rated, show 15% or better upside, and a dividend yield above 6%. And, all three are recommended by JPMorgan’s analysts. Let's take a closer look.
Outfront Media, Inc. (OUT)
We’ll start with a marketing company, specializing in outdoor media – billboard and transit ads. While these media may seem outdated, they remain an important part of traditional marketing – and have the power to reach a huge audience. The company is also diversifying into outdoor digital billboards. Outfront boasts over 500,000 displays, bringing in well over $1.7 billion in annual revenues.
The company reported strong growth in Q4 2019, with the quarterly revenue growing 7.8% to reach $488.1 million. EPS came in at 31 cents per share. The company used its positive quarterly results to announce an increase in its cash dividend, of 2 cents, to 38 cents per share. The increased dividend will be paid out at the end of March, and annualizes to $1.52. With a yield of 7.32%, OUT’s return is far higher than Treasury bonds, and more than triple the average dividend rate among S&P-listed companies. The payout ratio is 52%, indicating that the payment is easily sustainable.
Writing for JPM, 4-star analyst Alexia Quadrani says of Outdoor Media, “We like Outfront's longer term growth story with increasing digital billboard conversions and industry-leading technology initiatives, and we view the deployment of the new NYC MTA transit screens and increasing revenue contribution positively. Shares trade at a discount... We are encouraged by the sustained momentum in results and healthy returns…”
Quadrani’s Buy rating represents an upgrade from Neutral, and is supported by a $36 price target implying a 80% upside. (To watch Quadrani’s track record, click here)
Overall, Outfront’s analyst consensus rating is a unanimous Strong Buy, based on 5 Buy-side reviews. The average price target of $35.80 suggests room for 63% growth from the current share price of $21.90. (See Outfront stock analysis on TipRanks)
Ternium SA (TX)
With our next stock, we head into heavy industry. Ternium is a steel producer, with manufacturing facilities located in the southern US, Central America, Mexico, Argentina, Brazil, and Colombia. The company is a long and flat steel producer, and its products are offered for customers in the automotive, construction, HVAC, and home appliance industries. It’s Latin America’s leading steel company, and has a production capacity exceeding 12 million tons annually.
Ternium’s Q4 report showed revenue declines, both sequentially and year-over-year. The quarterly top line came in at $2.9 billion, down 5% yoy, while the FY revenues of $12.5 bill were down 3% from 2018. Quarterly EPS beat the forecast at 34 cents, but also marked the fifth consecutive quarter of sequential declines.
Despite the falloff in revenue and earnings, TX has maintained – and increased – its dividend payment since 2008. The current dividend is $1.20, paid out annually. This gives a yield of 8.5%, an impressive return by any standard. The payout ratio is high, at 88%, and shows a company commitment to sharing profits with investors.
TX is the second stock on this list to receive an upgrade from JPMorgan. Analyst Rodolfo Angele bumped the stock from Neutral to Buy, and set a price target of $25, indicating confidence in a 93% upside. (To watch Angele’s track record, click here)
Angele writes of this stock, “Looking forward, Ternium should benefit from a combination of increased volumes and improved pricing environment in both Mexico and Brazil… We see Ternium as a low leverage player with solid balance sheet and positive FCF generation. We believe 4Q19 marked the bottom of negative earnings momentum and expect margins to improve into 2020.”
The analyst consensus view on TX is a Moderate Buy, based on 2 Buys and 1 Sell. The stock sells for a discounted $14.07, and the average price target matches Angele’s: $25. The upside potential here is substantial, at 91%. (See Ternium stock analysis on TipRanks)
TCG BDC, Inc. (CGBD)
Last on today’s list is a specialty finance company. TCG BDC provides flexible financing solutions for mid-sized companies in the US, focusing on investment opportunities with defensive niche strategies and leading positions in their markets. CGBD’s asset portfolio is highly diversified, but does show a bias toward technology: 21% of its investments are in software or high tech, and another 5% in telecom. The overwhelming majority CGBD’s investments are in senior secured loans.
CGBD’s investment strategy has worked well for the company. In Q4, earnings beat the forecast by 2.3%, and came in at 44 cents per share. The earnings were more than enough to support the company’s 37-cent quarterly dividend. The payout ratio is 84%, high, but with sufficient slack to ensure that the company can afford the payment going forward. At an annualized $1.48, the dividend yields a whopping 12.6%. TCG BDC has a long history of adjusting dividend payments to ensure sustainability.
5-star analyst Richard Shane writes of this company, “CGBD sees signs of economic stabilization: lower risk from trade tensions and earnings growth at portfolio companies. The team expects COVID-19 will postpone, but not preclude, continued macro strength and they expect minimal portfolio impact, given the team’s focus on non-cyclical, domestic-demand driven companies… The portfolio is well positioned for rising rates, with ~99% of portfolio investments bearing floating interest rates.”
Shane gives CGBD a $14 price target to support his Buy rating. His target suggests room for 23% upside growth. (To watch Shane’s track record, click here)
Overall, CGBD get a Moderate Buy consensus rating, based on 2 Buys and 1 Sell. The stock sells for a low price, $11.35, and the average price target matches Shane’s at $14. (See CGBD stock analysis at TipRanks)