Analyst Has 4 Dividend Stocks to Buy With Big Q4 Potential
Portfolio managers and others in charge of investments are facing an up year, but many are trailing their benchmarks. There is nothing worse for active managers than trailing your benchmark, especially in an up year. For example, if your benchmark is the S&P 500, it is up about 5.7% for the year. If you are up say 4%, then you are trailing the benchmark.
In a new report, SunTrust Robinson Humphrey has combed through 39 analysts and a coverage universe of 640 stocks to come up with 30 stocks to Buy that are designed to help clients catch up to their benchmarks. The stocks that made the cut are part of a compelling list of lagging stocks rated Buy that could outperform the overall market this quarter.
We chose four that look like they do indeed have solid upside potential — and all pay very good dividends, which can help add total return.
American Electric Power
This industry leader is also a solid dividend-paying company. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states. It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
Many on Wall Street feel that the stock trades at a discount to its utility peers and they feel it deserves a premium. The company posted solid second-quarter numbers that exceeded consensus expectations. While industrial sales declined for a third year, it remains a stock the analysts favor.
American Electric Power shareholders are paid a solid 3.6% dividend. The SunTrust price objective for the stock is $76, and the Wall Street consensus target price is $71.32. Shares closed on Thursday at $62.91 apiece.
This company is a high yielding business development company to buy. Ares Capital Corp. (NASDAQ: ARCC) is a leading specialty finance company that provides one-stop debt and equity financing solutions to U.S. middle market companies, venture capital backed businesses and power-generation projects. Ares Capital originates and invests in senior secured loans, mezzanine debt and, to a lesser extent, equity investments through its national direct origination platform. Its investment objective is to generate both current income and capital appreciation through debt and equity investments primarily in private companies.
Top Wall Street analysts believe the strength of company’s origination platform, sizable balance sheet and ample liquidity position the company favorably in a very competitive investing environment. Other Wall Street analysts also believe that with current tight spread environment, Ares Capital has the scale and industry relationships to continue to make competitive, high-credit-quality investments.
Ares has a diversified portfolio totaling $9.1 billion at fair value. It consists of investments in 218 portfolio companies. The company’s recent acquisition of American Capital has weighed on the stock as risk arbitrage accounts have shorted it. The deal is set to close this quarter, which should remove that pressure.
Shareholders are paid a very rich 9.93% dividend. The $18 SunTrust price target compares with the consensus target of $16.67. The stock closed Thursday at $15.30 per share.