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By TipRanks
What goes up must come down, right? It works with gravity – but for the past couple of years the stock markets haven’t seemed to operate that way. The bull run shows no signs of ending – unless veteran investment strategist David Roche is right in his most recent predictions.
Roche is predicting that three factors will act together to bring the bulls to a halt by next year: disappointing rate cuts from the Federal Reserve; lower-than-expected earnings in the second half of this year; and a coming bust as investors realize that the AI boom is a classic bubble. Taking these together, Roche says, “I think there is enough in those three factors to cause a bear market of minus 20% in 2025, maybe starting at the end of this year.”
That, then, is a reminder for investors to start making defensive moves, and that will naturally turn attention to the dividend stocks.
These classic defensive plays offer the benefit of a steady income stream no matter how the markets turn – and with the high-yield div stocks, that income stream is more than enough to beat inflation. The Street’s analysts know this, and in the current environment they are recommending dividend payers with yields of at least 10%. That’s a solid return by any standard, and one that’s always worth a closer look.
AG Mortgage Investment Trust (MITT)
The first stock we’ll look at is that of AG Mortgage Investment Trust, one of the many REITs – real estate investment trust companies – that exist to both provide capital for and to profit from the real estate sector of the US economy. AG Mortgage is externally managed by an affiliate of the larger TPG Angelo Gordon company, one of the credit and real estate platforms with the larger TPG private equity firm based in Fort Worth, Texas. AG Mortgage operates as a pure-play residential mortgage REIT, and focuses its activities on building a risk-adjusted portfolio of residential mortgage-related assets in the US market.
According to the company’s fact sheet, AG’s investment portfolio was worth $6.9 billion as of June 30 this year. By far the largest portion, worth $5.6 billion, was in securitized loans, and 55% of the portfolio’s equity allocation was in residential mortgage assets. The portion of the company’s portfolio made up of securitized loans has been growing steadily over the past several years.
REITs are well-known as dividend champions, and AG Mortgage lives up to that. With the exception of several quarters in 2020, during the COVID pandemic period, the company has kept up its dividend payments since 2011. AG Mortgage resumed its payments at the end of 2020 and has not missed one since. The last dividend was paid out on July 31, at a rate of 19 cents per common share. This annualizes to $0.76 and gives a forward yield of 11.1%. AG Mortgage has a history of adjusting the dividend payment as needed to maintain reliability.
Turning to the company’s financials, we find that the dividend payment was supported by an earnings available for distribution (EAD) of 21 cents per common share in 2Q24. This was flat quarter-over-quarter, and up from 8 cents per share in the year-ago quarter.
For analyst Brad Capuzzi, of Piper Sandler, this REIT presents investors with a sound opportunity to buy in at a favorable point of entry. He writes of the company, “In our view, MITT is well positioned to see earnings growth throughout 2024 and 2025 as net interest income trends higher while scale and operating efficiencies show through from the WMC acquisition (completed last December). We currently forecast ~130% earnings growth in 2024 and an additional 27% earnings growth in 2025, generating ROEs in the low-teens as we exit 2025. There is a scenario where our estimates could skew conservative if MITT sees better spreads in the securitization market, funding costs improve as rates decline, and if the company executes on additional share repurchases.”
Looking ahead, Capuzzi sums up his position in simple phrasing, saying, “In our view, this is an opportunistic time to buy the stock as MITT shows significant earnings expansion and starts to close the valuation gap between peers.”
These comments backup Capuzzi’s Overweight (Buy) rating on MITT shares, and his $9 price target suggests that the stock will gain 32.5% in the coming year. Combined with the dividend potential, that gives a possible return of 43% over the next 12 months.
Overall, this stock has a Moderate Buy consensus rating from the Street, based on 3 recent reviews that include 2 Buys and 1 Hold. The shares are priced at $6.79 and their $8.33 average target price implies a one-year gain of almost 23%.
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Seven Hills Realty Trust (SEVN)
Next up is Seven Hills Realty Trust, another REIT in the US market. Seven Hills’ activities are aimed mainly at the commercial real estate market in the US, and the company has marked preference for ‘middle market and transitional real estate’ in the commercial market. The company defines middle market commercial real estate as properties with values up to $100 million and defines the transitional side of the business as investments in commercial properties that are subject to either redevelopment or repositioning that will increase the property values.
The company generated Distributable Earnings of $5.6 million in Q2, translating to 38 cents per diluted share. This was 4 cents per share better than had been expected.
These earnings results backed up the company’s dividend payment, which was last sent out on August 15 at a rate of 35 cents per common share. This was the seventh consecutive quarter with the dividend at this rate. The 35-cent payment annualizes to $1.40 per common share and equates to a forward yield of 10.5%.
Covering this stock for Janney, analyst Jason Stewart is quick to explain why Seven Hills should attract investor attention. He particularly notes the company’s success in navigating the COVID era, and strategic turn away from the office properties in the commercial real estate market. Stewart writes, “In its relatively short history as a public company, SEVN has managed a portfolio of CRE loans through the COVID-19 pandemic and one of the largest rate hike cycles in history with exceptionally good credit performance. The company has proactively reduced office exposure in its portfolio (though the remaining credits still represent meaningful exposure and deserve watching), loan origination activity is set to accelerate, current vintage loans will produce cyclically high ROEs, and the dividend is covered by earnings. At 72% of 2Q24 BVPS and a [10.4%] yield, shares are overly discounted.”
In-line with this outlook, Stewart puts a Buy rating on these shares, which he complements with a $15 price target, implying a 13% gain in the next 12 months. Add the dividend yield, and the one-year total return reaches 23.5%.
There are only two recent analyst reviews on SEVN shares, but they both agree that this is a stock to buy – giving the shares a Moderate Buy consensus rating. The stock’s $13.23 trading price and $14.75 average price target together indicate potential for an 11.5% gain in the year ahead.
Disclaimer: The opinions expressed in this article are solely those of the featured 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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