Two Dividend Stocks to Consider
Due to Credit Suisse’s financial troubles, oil prices plummeted over 6% to their lowest point in over a year, which offset hopes of a recovery of Chinese oil demand. Rising interest rates and economic uncertainty led to hedge funds liquidating. Additionally, U.S. crude stockpiles increased more than expected, beating analysts’ estimates. The collapse of Silicon Valley Bank and other U.S. bank failures may also impact fuel demand, potentially sparking a financial crisis. However, the International Energy Agency’s monthly report and OPEC’s increased Chinese demand forecast for 2023 supported oil demand. We shall analyze dividend stocks that may be of interest to investors seeking dividends and strong returns in these uncertain times.
Casey’s General Stores, a leading US convenience-store chain with a long history of consistent dividend payments and strong financials, and Blackstone Secured Lending, a business development company that provides capital and credit access to private US companies. With a strong portfolio of first-lien senior secured loans and a growing net investment income.
Casey’s General Stores
Casey’s General Stores, a leading U.S. convenience-store chain, has a long history of paying quarterly dividends for over 30 years, and has increased its dividend consistently over the past couple of years. The current dividend is $0.38 per share, yielding about 0.70%. The payout ratio, an important metric for dividend stocks, is at a low 12%, indicating that the company is likely to continue paying dividends in the future.
The company’s revenue and earnings per share have been growing, with year-over-year growth of 23.9% and 38.9%, respectively, for the first nine months of fiscal 2023. Despite its strong dividend history and a total return of roughly 95% over the past five years, the shift to electric cars raises concerns for shareholders. Same-store sales for gas decreased by 0.9% year over year, but gas sales still provide healthy margins for the business.
In the short term, Casey’s is well-positioned to continue to profit from gasoline sales, as only 1% of the estimated 250 million cars on the roads in America are electric. However, in the long run, Casey’s will need to transition to electric-vehicle chargers, which it is already starting to do by installing 138 EV chargers across 28 locations with plans to add more this year.
Overall, Casey’s is a strong stock to consider for dividend-seeking portfolios, as it is well-positioned to serve the needs of drivers in good times and bad, despite the shift to electric vehicles in the long term.
Blackstone Secured Lending
Blackstone Secured Lending, a business development company under the larger Blackstone asset management firm, provides capital and credit access to US private companies. Its portfolio consists mainly of first lien senior secured loans, valued at $9.6 billion as of December 31, 2022, and more than 99% of the debt investments are at floating rates. In 4Q22, BXSL showed a net investment income of 90 cents per share, up 13% quarter-over-quarter, and an even stronger 34% year-over-year. The company also raised its common share regular dividend by 17% to 70 cents, scheduled to be paid out on April 27, with an annualized rate of $2.80, yielding an impressive 11.3%. Compass Point’s 5-star analyst Casey Alexander rates BXSL a Buy, noting that the company’s strategy is well-adapted to the current interest rate regime and is well-positioned to return capital to shareholders. He calculates that the BDC generated a 9.5% return based on YE2021 NAV in 2022 and sees the company’s share repurchase program as a positive. The stock has a Moderate Buy consensus rating from Wall Street analysts, based on 9 recent analyst reviews that include 6 Buys and 3 Holds.
When dividend stocks go up, you make money. When they don’t go up — you still make money from the dividend. Even when a dividend stock goes down in price, it’s not all bad news, because the dividend yield gets richer the more the stock falls in price.
Monthly dividend stocks can be appealing to income-seeking investors due to their above-average dividend yields. Companies that opt for monthly payments often include real estate investment trust, closed-end funds, business development companies, and royalty trusts. Among the 283 stocks with market capitalizations greater than $250 million that pay monthly dividends, the median dividend yield is about 8% as of March 2023. However, investors should be cautious of dividend traps when considering monthly dividend stocks. Mortgage REITs, in particular, are known for their high dividend yields but also carry a high risk of fluctuating earnings, dividend reductions, and underperforming total returns. AGNC Investment and ARMOUR Residential, two popular mortgage REITs, currently offer dividend yields of 14% and 23%, respectively. It’s important to conduct thorough research and analysis before investing in monthly dividend stocks to avoid falling into a dividend trap.