2 High-Yield Dividend Stocks Worth Investing Now

Let’s start with the fact that no investor can beat this moment, the current volatile market. In the words of Goldman Sachs strategist David Kostin, “The first six months of 2022 have been a brutal time to be an investor in the public markets.” The losses, which amount to 19% year-to-date in the S&P 500, are broad-based. In addition to price extremes, neither value nor growth strategies have provided any respite.

Kostin dives into the current conditions and comes up with some interesting views. He writes, “2022 was a speculative valuation-driven equity market rather than a decline driven by lower earnings. Despite recession fears, S&P 500 consensus estimates for 2022 and 2023 EPS have been revised up so far this year.” But Kostin notes that there is a strong consensus pointing to downward EPS revisions by the end of the year, recession or no recession.

In this environment, Kostin recommends investors take a defensive stance, favoring stocks with a combination of high dividend yield and growth.

In this context, Goldman Sachs equity analysts have selected stocks whose dividend payments yield above the market average. We used the TipRanks database to compile the data for two of these stocks. Let’s look at the details, along with commentary from Goldman analysts, and find out what else these stocks have to offer.

Pioneer Natural Resources (PXD)

We’ll start with Pioneer Natural Resources, an Irving, Texas-based hydrocarbon exploration company working in the Permian Basin of West Texas. The Permian, in the past decade, has become one of the largest oil and gas producing regions in the world and has helped put Texas oil back on the global map. Pioneer’s holdings produced more than 637 thousand barrels of oil equivalent per day in the first quarter of this year and led the company to its seventh consecutive quarter of consecutive revenue gains.

The first-quarter top line was reported at $6.17 billion, which was an impressive 152% increase from 1Q21. Balanced against costs and expenses, this led to net income of $2.01 billion, or 7 $.74 per diluted share. In addition to strong revenue and earnings, Pioneer also generated plenty of cash, with first-quarter free cash flow reaching $2.3 billion.

This last item is of interest to dividend investors, as Pioneer boasts a high level of cash return to shareholders. The company said it returned 88% of its first-quarter free cash flow through a combination of a base dividend of 78 cents and a large variable dividend, which was set at $6.60 for the quarter. The combined dividend, assuming continued high variable payouts for the rest of the year, is annualized to more than $29 per share and yields a strong 13.7%.

The dividend and high rates of return on capital caught the attention of Goldman analyst Neil Mehta, who writes: “We believe PXD is well-positioned to generate attractive FCF given its diversified underdeveloped stock (15+ years) in core of the Permian. Also, given PXD’s strong balance sheet, we expect PXD to allocate most of its FCF to a capital return program that includes (1) 75%-80% to fixed + variable dividend; and (2) stay to repurchase shares. For 2022E/23E, we see PXD generating an FCF yield of 19%/16% and distributing ~16% forward 1-year dividend yield.”

Not surprisingly, then, the 5-star analyst has a Buy rating on the stock, which he backs with a $266 price target, indicating the potential for 26% growth over the next year. (To follow Mehta’s background, Click here)

Overall, this stock has received a consensus Moderate Buy rating from Wall Street analysts, based on 19 recent analyst reviews that include 13 buys and 6 holds. Shares are trading at $211.37 and the average price target of $303.68 suggests a one-year upside of ~44%. (See PXD Stock Prediction on TipRanks)

Phillips 66 (PSX)

The second dividend stock we’ll look at is one of the major players in the oil and gas industry, Phillips 66. This oil major has a market cap of $38 billion and more than $111 billion in annual revenue. The company has its hands in multiple aspects of the hydrocarbon business, including refining, downstream and marketing of a wide range of fuels, fuel oils and lubricants, as well as industrial chemicals, including petrochemicals.

Rising oil prices over the past 12 months have been a boon to the industry as a whole, and Phillips 66 has been no exception to that rule. The company’s 2021 revenue grew 75% year-over-year and its 1Q22 top line of $36.6 billion was up 12% from 4Q21 and 70% from 1Q21 21st. Earnings, which are more volatile, came in at an adjusted total of $595 million for the quarter, giving adjusted EPS of $1.32. While it was down from the $2.94 figure in Q4, the first-quarter earnings were a big turnaround from the $1.16 loss per share reported in the previous quarter.

In terms of cash flow, Phillips 66 reported a total of $1.1 billion in cash from operations in the first quarter. This funded about $370 million in capital expenditures and investments – without skimping on the dividend, which was funded to the tune of $404 million. The company, which held $9 billion in cash reserves at the end of the quarter, announced the restart of an existing stock buyback program, with $2.5 billion authorized.

Dividend investors will be pleased to note that Phillips 66 increased its dividend payout in its most recent filing to 97 cents per common share, which was paid on June 1. above the ~2% average yield found among dividend payers in the broader markets.

Checking in with Neil Mehta once again, we find that he has posted an upbeat PSX view on Goldman, saying of the firm: “Phillips 66 remains our top idea in our US product coverage. As the stock has underperformed MPC and VLO peers by ~40% over the last 12 months, we don’t think the market is crediting the positive tilt in PSX earnings, cash flow and returns on capital that we expect to see in 2022 /2023…. Overall, we see a 38% total return on the PSX versus the large-cap average of 14% and the refining industry average of 20%.

Mehta’s comments reinforce a Buy rating on the shares, while the $109 price target suggests they have a 40% upside over the next year.

Phillips 66 claims a strong buy rating from the consensus of analysts, based on 10 reviews split 9 to 1 in favor of Buy over Hold. The stock is trading at $77 and the average price target of $111.90 suggests a 45% one-year upside potential from current levels. (See PSX Stock Prediction on TipRanks)

To find good ideas for trading stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock information.

Disclaimer: The views expressed in this article are solely those of the selected analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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