4 Mid-Cap Stocks With 6% to 10% Yields and Upside Expected

August 2, 2016 by Jon C. Ogg

Investors have to be wondering just what to think about the stock market these days. Despite all the negative international catalysts and despite so much uncertainty, even in the United States, stocks have hit all-time highs. Dividends have been responsible for so much of the total returns in recent years.

Investors love dividends. More than half of the Dow stocks, some 21 of 30, outyield the 30-year Treasury note’s 2.2% yield. Still, there are some companies that pay 5%, 6% and even 8% or 10% yields to their investors. These are generally more obscure or are complicated companies. Still, there are some in the 6% and higher category that are still viewed favorably for upside by analysts and investors alike.

24/7 Wall St. has pulled apart the dividend-paying universe for the stocks with yields north of 6%. We did not include the master limited partnerships (MLPs), and we were careful in not allowing certain aspects of the real estate investment trust (REIT) market to be included due to earnings and distribution volatility.

The screen from 24/7 Wall St. focused on stocks with a market cap of $2 billion or more. These companies are pretty much all in the lower mid-cap level due to have market capitalization rates of under $10 billion.

Each company had to have enough dividend support with earnings from operations or cash flows to support the dividend. Two were income and two were from cash flow. Of the two here from cash flows, analysts do see those dividends remaining static ahead.

These companies also had to have an average daily trading volume of at least 200,000 shares. That may seem easy enough, but too many companies have trading volume of under 50,000 and that can create a sense of illiquidity.

Each company screened had to have a dividend yield of 6% or more. That being said, the lowest yield was 6.7% – with one at 8% and one at almost 10%.

These also had to a have a consensus analyst price target from Thomson Reuters that was above the current share price. That doesn’t mean that analysts are universally higher, but it at least means that the general lot of analysts is more positive than negative. Also included is a brief description on each company and additional color.

ALLIANCE-BERNSTEIN

AllianceBernstein Holding L.P. (NYSE: AB) keeps showing up in dividend screens north of 6%, but the stock has not rallied as the public does not want to pay up for traditional asset managers whose assets are not dominated by exchange traded funds (ETFs). It pays a $1.60 annualized per share dividend, and while the last report barely hit that 40 cent target, the reality is that analysts see $1.77 in earnings per share (EPS) in 2016 and $1.99 EPS in 2017.

With shares at $23.75, the yield is 6.7%, and the market cap is $2.3 billion. AllianceBernstein has a consensus analyst target price of $25.00 and a 52-week trading range of $16.11 to $29.49.

One issue that could be viewed either way is that AllianceBernstein called off a deal to acquire a fund from the hedge fund manager Visium Asset Management. The firm is also now higher than the $24 target assigned by Merrill Lynch back in March when it raised its rating to Buy from Neutral.

ARES CAPITAL

Ares Capital Corp. (NASDAQ: ARCC) has a consensus analyst target that is above the share price, but the business development company (BDC) is not at all universally loved. Some analysts and investors even expect a dividend cut. With shares at roughly $15.25, the $1.52 annualized payout has a yield of 9.9%. The 52-week range is $11.01 to $16.22, and the company’s market cap is about $4.8 billion. The consensus price target is $16.63.

Ares Capital is specialty finance shop for debt and equity financing in the middle market sector. This is classified as BDC, a segment that has been discounted by the market of late. That being said, analysts do see the earnings matching or exceeding that $0.38 current payout. The company represents in its press releases that it is the largest BDC by total assets and market capitalization.

The entire BDC class has historically been neglected by traditional analysts. Jefferies was recently positive here, and its $17.50 price target was based on Ares’s own origination platform, noting that Ares has a diversified portfolio totaling $9.1 billion at fair value.

FRONTIER COMMUNICATIONS

Frontier Communications Corp. (NASDAQ: FTR) is a company that is an exception to the rule of earnings per share exceeding the dividend. This is a cash flow story, and the company has suggested that it is supportable, and analysts are predicting that the dividend will stay static at $0.42 per share on an annualized basis ahead.

Trading at $5.15, Frontier has a dividend yield right at 8% and its market cap is $6 billion. The consensus target price is $6.00, and the 52-week range is $3.81 to $5.85.

Frontier is a battleground stock because so many investors have a hard time understanding the dividend and cash flow when it has losses. It is always actively shorted, with the latest short interest data showing a whopping 166 million shares short. UBS recently said that Frontier should be a $7 stock. Just keep in mind that the lowest price target is all the way down at $4.

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COMMUNICATIONS SALES & LEASING

Communications Sales & Leasing, Inc. (NASDAQ: CSAL) is technically a REIT, but it is in the communications infrastructure and wireless infrastructure solutions industry. If this one is not that familiar by name, note that it was formed via a spin-off of Windstream Holdings.

Communications Sales & Leasing recently traded at $30.95 and has a 7.7% yield. Its market cap is $4.7 billion, its consensus price target is $31.43 and its 52-week range is $15.13 to $31.24.

This REIT was mentioned last because of the limited trading history and due to it being covered less frequently than other telecom and REIT players. Its 5.1 million shares in the short interest was the highest short interest reading since June 29.