Investment agency Morgan Stanley had set a 3,900 year-end goal for the S&P 500 – and it’s already out of date. The index stands at 4,196, a 7.5% above Morgan Stanley’s goal. Year-to-date, regardless of some risky buying and selling, the S&P is up almost 12%.
Mike Wilson, chief funding officer and US fairness strategist for Morgan Stanley has taken a deep dive into the present state of the market, and believes that values have peaked – at the least for now.
“We continue to believe valuations are too high and will adjust materially lower over the next six months… We’ve left the early cycle part of this recovery… the reopening of the economy is likely to put upward pressure on costs and downward pressure on margins. This will come as a surprise to now lofty earnings estimates, in our view,” Wilson defined.
The markets are getting no assist from tax coverage, both. Wilson notes that the Biden Administration is pushing to extend the company tax price to 28%, and whereas it’s prone to compromise at a barely decrease price, Wilson sees elevated company taxes as a headwind for the S&P.
For retail buyers, this surroundings factors towards defensive shares, to insulate the portfolio from share depreciation, and that may naturally convey up the topic of dividend shares. The dividend cost offers a gentle revenue stream, one that may compensate for decrease share beneficial properties when markets hit a plateau.
Bearing this in thoughts, we used the TipRanks’ database to zero-in on two shares which can be exhibiting excessive dividend yields – on the order of seven%. Each inventory additionally holds a Strong Buy consensus ranking; let’s see what makes them so enticing to Wall Street’s analysts.
Hercules Capital (HTGC)
We’ll begin with Hercules Capital, a enterprise improvement firm that places a twist on its area of interest – it focuses on enterprise capital. Hercules offers funding and help for science-oriented, early-stage consumer corporations. The firm has $2.6 billion in belongings below administration, and in 18 years of enterprise has dedicated $11.6 billion in funding to greater than 530 shoppers.
For the primary quarter of this yr, Hercules reported a report degree of latest debt and fairness commitments, at $530.9 million. The firm had $550 million in out there liquidity at quarter’s finish, and a internet funding revenue of 30 cents per share, based mostly on a complete of $34.6 million.
During the quarter, Hercules additionally declared its common dividend, at 32 cents per widespread share. Afterward, the corporate added a supplemental dividend of seven cents per share, making the to complete cost 39 cents within the present quarter. That cost offers a yield of seven.5%.
Covering the inventory for RBC Capital, 5-star analyst Kenneth Lee writes: “HTGC’s first private credit fund could potentially expand opportunities down the line. Pipeline of potential investments looks robust. We continue to favor HTGC’s specialized niche of direct lending to growth-oriented, tech-related companies, well-supported dividends and above-peer avg ROE generation potential.”
The analyst added, “We continue to believe HTGC’s common dividends are well-supported; our forecasted NII/sh for FY21/FY22 continue to be above the base dividend level. Further, the 94c/sh in spillover income provides additional support.”
To this finish, Lee charges HTGC an Outperform (i.e. Buy), and his $19 worth goal implies a one-year upside potential of ~14%. Based on the present dividend yield and the anticipated worth appreciation, the inventory has ~21% potential complete return profile. (To watch Lee’s observe report, click here)
Wall Street’s analysts are in full settlement right here; all 10 of the current critiques on HTGC shares are optimistic, making the Strong Buy consensus ranking unanimous. The inventory is promoting for $17.03 and the $18.13 common worth goal suggests ~12% upside potential. (See HTGC stock analysis on TipRanks)
Gladstone Commercial (GOOD)
We’ll shift gears barely – however keep within the monetary sector – for our subsequent inventory. Gladstone Commercial is an actual property funding belief (REIT), and as its title suggests, the corporate focuses on industrial actual property. Gladstone’s portfolio is made up primarily of business and workplace properties, each single-tenant and anchored multi-tenant. The portfolio consists of 120 properties throughout 27 states, with a complete of 107 tenants. Gladstone boasts that its property occupancy price has by no means dipped beneath 95% for the reason that firm went public in 2003; the present occupancy price is 95.5%.
Another characteristic of Gladstone’s portfolio is the long-term nature of the leases. This helps to lock within the revenue stream, sustaining regular income even when the macroeconomic state of affairs is unstable. Gladstone has seen its quarterly income stay between $33 million and $34.6 million via the previous 5 quarters.
The most up-to-date quarter, 1Q21, Gladstone confirmed $34.6 million in complete income, the highest of that vary. The firm collected 98% of the rents due throughout the quarter, and renewed leases on over 192,000 sq. toes of property, with lease phrases set between 6.6 and 11.eight years.
Importantly for buyers, Gladstone additionally declared its dividend for the quarter. The firm pays out month-to-month, and in April it declared a 12.5 cent cost for every of the months April, May, and June. This provides as much as 37.5 cents quarterly, or $1.50 per widespread share annualized. At that price, the dividend yields 7.2%.
Craig Kucera, 5-star analyst from B. Riley Securities, writes of this firm: “GOOD’s occupancy is improving and acquisition volume is expected to pick up during the remainder of 2021… GOOD’s focus on investing in smaller industrial properties located in secondary markets continues to allow for acquisition yields ahead of the company’s cost of capital and we find shares attractive, trading at 100% of our NAV estimate…”
Unsurprisingly, Kucera charges GOOD shares a Buy together with a $23 worth goal, suggesting a 10% upside. (To watch Kucera’s observe report, click here)
While there are solely Three current critiques on this inventory, all are optimistic, making the analyst consensus ranking a Strong Buy. GOOD has a median worth goal of $23, matching Kucera’s above, and a present buying and selling worth of $20.92. (See GOOD stock analysis on TipRanks)
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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 essential to do your individual evaluation earlier than making any funding.