Dividend stocks have been fairly stable in a first half of market turbulence. While the relative valuations of blue-chip dividend stocks may look less attractive as the rest of the market stabilizes, Wall Street analysts remain bullish on a few big names. In this installment, we used the TipRanks comparison tool to take a closer look three dividend stocks with Strong Buy ratings. and a yield of 3% or higher.
Magna International (MGA)
Magna International is a Canadian auto parts maker with a market cap of $18.6 billion and a generous dividend yield of 2.8%. Although auto parts are quite cyclical, the firm sees itself as a mobile technology company. As the automotive market electrifies over the next decade, Magna finds itself in the driver’s seat (pardon the pun) of an intriguing boom.
It’s not electrification that can sustain a relatively robust auto market for the next decade. Vehicles are becoming increasingly connected, and autonomy could be the next big step. Indeed, vehicles are becoming more and more like the smartphones we drive. Demand for advanced technology and performance auto parts is likely to make Magna stock an intriguing long-term play.
The stock is currently trying to make a comeback after a peak-to-trough slide of more than 47%.. At 0.5x sales and 27x earnings, MGA stock is an intriguing way to show the continued evolution of cars.
During the first quarter, Magna felt the heat of inflation. Revenue fell 5% year-over-year, while full-year revenue guidance was cut to $37.3 billion to $38.9 billion from $38.8 billion to $40.4 billion. When the storm of inflation and recession subsides, MGA stock could see a major boost in the next bull market.
Despite the headwinds, Wall Street is bullish: MGA’s average price target is $72.72, implying upside potential of 13.2%. This is based on eight purchases and two holds made in the last three months.
Philips 66 (PSX)
Philips 66 is a mid-cap energy refining operator that has had a rather volatile run since bottoming out in late 2020. The stock recently fell nearly 30% from peak to trough before rebounding sharply. The wide-moat energy company is down just over 20% from its 52-week high. At the time of writing, the stock trades at 7.8 times earnings, with a dividend yield of 4.2%..
As energy prices remain high even as the economy slows, Philips 66 should continue to generate impressive cash flow through its refining and midstream businesses. Even if refining demand were to drop unexpectedly, its Midstream and Chemicals segments could bolster the ship and its continued dividend payout.
Indeed, Philips 66 is much more diversified than many of its refining peers.
Chemicals and Refining were extremely strong in their most recent quarter, delivering an impressive 77% increase in revenue. As Philips 66 continues to benefit from windfalls from high energy prices, it needs to raise significant amounts of cash to fund dividend growth and share buybacks. Last year, the company returned $1.6 billion to shareholders in dividends and buybacks.
Wall Street is bullish on the $42.1 billion energy giant based on nine Buy ratings and just one Hold. Philips 66’s $116.00 average price target suggests a 32.6% upside potential. Several five-star analysts, including RBC (RY) the capital T. J. Shultzwhich ranks 40th out of 21,000 experts tracked by TipRanks.
Tapestry (TPR)
Tapestry is a high-end accessories (think handbags) and lifestyle company with a solid 3% dividend yield. The firm is best known for its luxury brands such as Kate Spade and Coach.
Tapestry shares have been falling steadily into bear market territory over the past year, down about 30% from their 2021 peak. While consumer spending may decline rapidly during a recession, it is arguable that more affluent consumers are likely to continue to make discretionary (nice-to-have) purchases.
In addition, strong brands appear better able to evade inflationary pressures. Luxury goods generally do not experience a drop in sales in response to a small price increase. If anything, the higher prices reinforce the luxury appeal of the brand.
Either way, the recession will have a big impact on future results. However, it seems that a lot of damage is already baked into the composition. Looking ahead, Tapestry hopes to leverage its brands more effectively on the international stage.
As TPR shares remain on the decline, management announced a $1.9 billion shareholder return program. Bountiful dividends and share buybacks await, even as a recession looms. Indeed, such share buybacks look timely, given that the stock looks incredibly cheap after the recent drop. The stock trades at just 1.3 times sales and 9.9 times earnings.
Wall Street loves the name, Tapestry has an average target price of $44.56, which implies a potential upside of 31.1% from TPR’s current price of $34.00. The stock has a consensus rating of Strong Buy, based on 13 buys and three holds assigned over the past three months.
Conclusion: Analysts are most bullish on PSX stock
The following three dividend payers have seen a bit of pressure and could disappear further as a potential recession looms. However, strong long-term fundamentals are likely to shine through. That’s probably why Wall Street remains bullish on these stocks despite the negative momentum. Of the three names, analysts expect PSX stock to have the most upside potential over the next year.
