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For the average investor, the stock markets present a bewildering array of data points: there are nearly 10,000 publicly traded companies and almost 8,000 professional analysts on Wall Street who build their careers making sense of the myriad trendlines traced out by the stocks and indexes.
Those Wall Street pros are the logical people to turn to for market advice, and their reports and opinions are readily available – published by major investment firms, or drawn out by interviewers for print, video, and online media. But can you just take their word? With so many analysts to choose from, how do you know that you’re listening to Wall Street’s best analysts?
Fortunately, the data algorithms at TipRanks have sorted out the analysts by a variety of factors, and listed them by their overall ratings. Checking out the top Wall Street analysts, we find that one stock expert, Vincent Lovaglio of Mizuho Securities, is standing high above his peers.
His top rating is based on a combination of his overall success rate – which currently stands at 98% – and the average return his recommendations have brought over the past year – a high 73%. It’s easy to see why Lovaglio stands out.
Now we can put him to the test. Two of Lovaglio’s recent stock picks are high-yield dividend payers, offering investors a steady income stream that beats the average dividend by a wide margin. Are these the right stocks for your portfolio? Let’s take a closer look.
Devon Energy (DVN)
The first of Lovaglio’s picks we’ll look at is Devon Energy, a resident company of the oil and gas industry. Based in Oklahoma City, Devon is one of the largest independent hydrocarbon exploration and production companies in the US onshore sector. Devon has operations in five states – Montana, Colorado, Oklahoma, New Mexico, and Texas – but its largest effort is in the Delaware Basin on the Texas-New Mexico border region. All of Devon’s ops are located in top-tier production regions.
Devon brings significant resources to its development projects. It’s $50 billion market cap gives the company a solid foundation, and it has benefited in recent months from the high inflation evident in the energy sector. Devon has seen strong gains in its earnings and stock’s price over the past 12 months.
On earnings, Devon brought in a net income of $1 billion in the first quarter of this year. This came out to $1.88 per diluted share, in what amounted to the sixth consecutive quarter of sequential gains. The company’s operating cash flow grew 14% in Q1, and provided a record-level $1.3 billion in free cash flow. With all of this, it’s no wonder that Devon’s shares have been increasing steadily. In the past 12 months, the company’s stock has delivered returns of 165%.
Devon’s cash flow fully funded the company’s capital requirements and has backed up a record-level share buyback program. This last has now been increased by the Board to $2 billion, or some 25% of all outstanding shares.
The company’s cash flow has also funded a record-level dividend. For Q1, Devon declared a payment of $1.27 per common share. With an annualized rate of $5.08, this gives a yield of 6.7%, or more than triple the average dividend found among S&P-listed firms. Devon has increased its dividend in the last 5 consecutive declarations.
Lovaglio notes these factors in his coverage of Devon, especially the increases to the share repurchase and dividend programs. He writes, “DVN was able to avoid increasing capex for the full year in spite of inflation and a tight market for supplies (and is also sticking to its maintenance-focused program). DVN ended the quarter with ~0.6x leverage, which could get very close to 0 at current strip by year-end. We continue to believe the US E&Ps are well positioned with double-digit cash return at strip and as net beneficiaries of energy-led inflation. DVN is no exception.”
These comments back up Lovaglio’s Buy rating, and his $89 price target implies a one-year upside of ~23%. Based on the current dividend yield and the expected price appreciation, the stock has ~29% potential total return profile. (To watch Lovaglio’s track record, click here)
Looking at the consensus breakdown, Devon has 6 Hold ratings – but these are overbalanced by 14 Buys, and the stock has an overall rating of Moderate Buy. (See DVN stock forecast on TipRanks)
Pioneer Natural (PXD)
The second stock we’ll look at is Pioneer Natural Resources, another of the E&P firms working the Texas oilpatch. Pioneer operates on the exploration and production side of the oil business, bringing in gains from direct oil production on holdings in the West Texas Permian Basin. The Permian is the geological formation that has put Texas back onto the world’s oil map in recent decades, and it is far from played out – Pioneer has major assets in the oil patch region, which is the world’s second largest after Saudi Arabia. Some experts estimate that the Permian Basin may hold even more hydrocarbon resources than Saudi, and Pioneer is well-placed to reap gains going forward.
In fact, the company is already reaping those gains. Pioneer’s shares are up ~60% year-to-date, and in the bigger picture of the last 12 months, PXD had gained ~87%. The share price gains have marched hand-in-hand with 8 quarters in a row of sequential earnings gains. In the recent 1Q22 report, Pioneer showed a whopping $7.74 in profit per diluted share. This was based on a total net income of $2 billion in non-GAAP measures.
The solid earnings are well on their way back to the shareholders. Pioneer pays out a regular quarterly dividend, and usually adds a variable payment as it is able. For the most recent declaration, the base+variable came out to $7.38 per share. The total dividend payment gives an impressive yield of 10.5%, giving PXD a real yield that exceeds inflation.
Lovaglio notes that Pioneer has an upbeat production outlook, based on its wide portfolio of assets, and writes of PXD: “The company provides among the deepest unconventional inventories (20+ years of inventory economic at $40/bbl), which we believe will drive differentiation vs peers (with upper quartile oil and cash flow growth) longer term.”
Lovaglio sees this outlook supporting Pioneer going forward, and gives the stock a Buy rating with a $343 price target indicating a possible upside of ~23% this year.
Overall, there are 17 recent analyst reviews on this stock, with a breakdown of 12 Buys and 5 Holds for a Moderate Buy consensus rating. (See PXD stock analysis at TipRanks)
To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
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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