Top Wall Street analysts expect these dividend stocks to boost portfolio returns

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A logo of the Exxon Mobil Corp is seen at the Rio Oil and Gas Expo and Conference in Rio de Janeiro, Brazil September 24, 2018.
Sergio Moraes | Reuters

Dividend-paying stocks are looking even more attractive as investors grapple with a spike in bond yields and a tumultuous stock market.

With that in mind, here are five attractive dividend stocks, according to Wall Street’s top experts on TipRanks, a platform that ranks analysts based on their past performance.

Exxon Mobil

First on this week’s list is dividend aristocrat Exxon Mobil (XOM). The energy giant offers a yield of 3.4%. The company’s dividend hike of 3.4% last year marked the 40th consecutive year of annual dividend growth. Exxon’s dividends are backed by solid earnings and cash flows.

In the second quarter, the company distributed $8 billion to shareholders through share repurchases of $4.3 billion and dividends of $3.7 billion. It generated free cash flow of $5 billion in the June quarter.

Mizuho analyst Nitin Kumar reiterated a buy rating on Exxon with a price target of $139 after attending the company’s Product Solutions Spotlight event. The analyst said that the company is on track to meet its target of boosting its product solutions earnings by $10 billion by 2027 compared to $6 billion reported in 2019.

“With 1H23 annualized earnings at $11.5 billion, the company is halfway through that target, with most of the benefit to date from cost reductions,” noted Kumar.

He expects key strategic projects that have recently commenced, like Beaumont crude expansion and chemical expansions at Baytown, and major projects planned for 2024 to 2027, such as the Singapore Resid upgrade project, to help Exxon deliver most of the targeted improvement in earnings by 2027.

Kumar ranks No.67 among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 71% of the time, with each delivering a return of 19.8%, on average. (See Exxon Insider Trading Activity on TipRanks)

Coterra Energy

Kumar is also bullish on Coterra Energy (CTRA), an oil and gas exploration and production company with major operations in the Permian Basin, Marcellus Shale and Anadarko Basin. Earlier this year, the company increased its annual base dividend by 33% to 80 cents per share.

The company’s shareholder return strategy is to distribute 50% of its free cash flow via base dividends, share repurchases and variable dividends. CTRA realigned its return strategy for 2023 to give importance to buybacks over variable dividends. In the first six months of 2023, it paid $303 million through dividends and made share repurchases worth $325 million, with the total shareholder return representing 94% of free cash flow.

Last month, Kumar hosted investor meetings with CTRA’s management and said the key takeaway was that the company is confident about delivering solid returns on investment in most commodity price scenarios. In particular, management highlighted the flexibility and optionality of CTRA’s asset base and capital allocation strategy.

“In our opinion, the common thread between their choices is the potential to outperform the three-year (2023-25) plan that calls for ~5%+ oil growth for ~$2.0-2.1bn of total capex – either through less capex or more volumes – but without a degradation of capital efficiencies,” said Kumar.

Calling CTRA his top pick, Kumar reiterated a buy rating on the stock with a price target of $42. (See Coterra Financial Statements on TipRanks)

Brookfield Infrastructure Partners

Next on this week’s dividend list is Brookfield Infrastructure (BIP), which operates assets in the utilities, transport, midstream, and data sectors. BIP paid a quarterly dividend of $0.3825 per unit on Sept. 29, which reflects a 6% year-over-year increase in its distribution. The company offers a dividend yield of 5.5%.

At an investor day event held last month, management discussed its goal to deliver more than 12% growth in funds from its operations per unit as part of its 1- to 3-year outlook.

RBC Capital analyst Robert Kwan, who ranks 194th out of over 8,500 analysts tracked on TipRanks, noted that the company’s targeted FFO/unit growth is expected to be partially driven by its significant organic capital backlog, mainly in the data center business.

The analyst also thinks that given the capital constraints in the current backdrop due to a slowdown in fundraising activity, an entity like Brookfield has the potential to enhance returns by investing capital above its 12% to 15% equity internal rate of return (IRR) target range.   

“We believe that the unit price weakness is an attractive entry point based on a 5% current distribution yield with potential for double-digit underlying FFO/unit growth,” said Kwan.

Kwan reaffirmed a buy rating on BIP stock with a price target of $45. His ratings have been profitable 64% of the time, with each delivering an average return of 10.8%. (See BIP Stock Chart on TipRanks)

American Electric Power

Another RBC Capital analyst, Shelby Tucker, is bullish on utility stock American Electric Power (AEP). On Oct. 2, the company named Charles E. Zebula as its new chief financial officer and reaffirmed its 2023 operating earnings outlook of $5.19 to $5.39 per share and long-term operating earnings growth rate of 6% to 7%.

AEP paid a quarterly dividend of 83 cents per share on Sept. 8, its 453rd consecutive quarterly cash dividend. It offers a dividend yield of 4.6%.

Recently, Tucker lowered the price target for AEP to $90 from $103 to reflect a high interest environment but reiterated a buy rating. The analyst said that the stock remains one of the firm’s top picks in 2023 and one of the best-in-class utilities.

The analyst thinks that AEP’s $40 billion regulated capital spending plan, focusing on transmission deployment, offers strong resiliency against a challenging macro backdrop and cost inflation. Tucker also expects the company to benefit from the incentives under the Inflation Reduction Act.  

“We believe AEP deserves a slight premium on valuations from rapid decarbonization of its generation fleet and robust investments in regulated renewable,” the analyst said.

Tucker holds the 367th position among more than 8,500 analysts on TipRanks. Moreover, 61% of his ratings have been profitable, with each generating an average return of 8.1%. (See AEP Blogger Opinions & Sentiment on TipRanks) 

Darden Restaurants

Darden Restaurants (DRI), the owner of Olive Garden and other popular brands, delivered better-than-anticipated fiscal first-quarter results, despite the pullback in consumer spending affecting the company’s fine dining segment.   

The company paid $159 million in dividends and deployed about $143 million toward share repurchases in the fiscal first quarter. With a quarterly dividend of $1.31 per share (annualized dividend of $5.24), DRI stock’s dividend yield is 3.7%.       

Following the results, JPMorgan analyst John Ivankoe reiterated a buy rating on DRI stock but lowered the price target to $174 from $176.

The analyst noted that the company’s same-store sales growth of 5% surpassed his estimate of 4.4%, with its Olive Garden and LongHorn Steakhouse chains offsetting the softness in fine dining. Also, DRI’s same-store sales growth outperformed the industry average of 0.9%.       

“Finally, the 10%+ TSR [total shareholder return] (EPS + annual dividend yield) remains intact for F24/25,” said Ivankoe.  

Ivankoe holds the 854th position among more than 8,500 analysts tracked on TipRanks. Moreover, 60% of his ratings have been profitable, with each generating an average return of 7.1%. (See DRI Hedge Fund Trading Activity on TipRanks)