Seeking Up to 11% Dividend Yield? Analysts Pick 2 Dividend Stocks to Buy

Stifel's Chief Equity Strategist, Barry Bannister, warns that the current stock market rebound is unsustainable due to historically high S&P 500 valuations, projecting a potential 15% decline. He advises investors to adopt defensive strategies, specifically favoring high-yield dividend stocks for steady income. The article highlights two such opportunities: Ellington Financial (EFC), a REIT with an 11.5% annualized dividend yield and strong Q2 earnings coverage, and Dorian LPG (LPG), a shipping firm offering an 8% irregular dividend, with both receiving 'Buy' ratings from analysts despite Dorian's recent earnings miss.

Analysis

Stifel's chief equity strategist, Barry Bannister, posits a bearish outlook for the broader market, arguing that the S&P 500's recent rebound is unsustainable due to historically high valuations. He forecasts a potential decline of nearly 15% to the 5,500 level, prompting his recommendation for a defensive shift towards high-yield dividend stocks. In this context, two specific companies are highlighted. Ellington Financial (EFC), a REIT, demonstrates strong fundamentals with Q2 adjusted distributable earnings of 47 cents per share, which amply covers its 39-cent quarterly dividend, supporting its substantial 11.5% annualized yield. The company's record of six securitizations in the quarter and potential for growth in the non-QM space further reinforce the positive analyst sentiment. In contrast, Dorian LPG (LPG) presents a more complex picture. Despite a significant fiscal Q1 earnings miss, with revenue down 26% year-over-year and adj. EPS falling short of forecasts, analysts view the weak performance as a one-off event. The bull case for LPG is forward-looking, predicated on materially strengthening VLGC spot rates which are expected to drive strong upcoming results and support its 8% yield, although its dividend is noted to be on an irregular payment schedule.

Key Decisions for Investors

• Given the strategist's warning of a potential market correction driven by high valuations, investors should consider increasing defensive positioning and scrutinizing exposure to broad market indices.
• Ellington Financial (EFC) appears to be a solid candidate for income-oriented investors, as its high 11.5% dividend yield is currently well-covered by distributable earnings, suggesting a degree of sustainability.
• Dorian LPG (LPG) represents a higher-risk tactical opportunity; investors must weigh the recent significant earnings miss and irregular dividend policy against the analyst's forecast for a strong recovery based on rising VLGC spot rates.
• Before investing, it is crucial to monitor the sustainability of the dividend for both companies, as the high yield is the central component of the defensive thesis presented.