What can we say about 2022? The year is only 6 weeks old, and the markets – which climbed so high in 2021 – are in a correction. The NASDAQ has fallen almost 12% since the start of the year, and the S&P 500 is behind at a net year-to-date loss of 8%. The losses have been broad-based, although tech has been particularly hard hit.
The headwinds pushing against the market momentum have come in a cluster. From the supply chain bottlenecks, to increasing shortages of goods, to steadily rising inflation, to the COVID pandemic that won’t go away and the vaccines that are seemingly ineffective, to the war drums beating on the Russia-Ukraine border, it seems there’s just nowhere to turn for a respite.
Taking a cautious approach could prove to be a prudent solution; investors can seek shelter in a defensive play that will provide some income padding in the portfolio. Dividend stocks are a common choice; if the yield is high enough, it can offset losses elsewhere.
Bearing this in mind, we used the TipRanks’ database to zero-in on two stocks that are showing high dividend yields – on the order of 9% or more. Wall Street’s analysts say that these are solid stocks to buy. Let’s take a closer look.
Sibanye Stillwater (SBSW)
We’ll start in the mining sector, because what could be better than owning your own gold mine? Sibanye Stillwater has gold mining ops in its home country of South Africa – but has diversified widely around the world and is now one of the largest producers of the platinum group metals (PGMs), an important class of precious and rare metal elements. While Sibanye Stillwater is the world’s #3 gold producer, it is the #1 platinum producer and the #2 producer of palladium. The company is also heavily involved in recycling the industrial platinum used in automotive catalytic converters, and is moving toward the battery-metal recycling business as well. As by-products of the precious metal operations, Sibanye produces significant quantities of copper, lithium, nickel, and zinc
This company reports its results every six months; the last such report, for 1H21, was released in August, and the next, for 2H21, is due out on March 3. Operating results, released in October, showed almost 644,400 ounces of PGM produced in the quarter ended September 30, 2021, along with over 293,000 ounces of gold. The PGM result was up from more than 612K ounces produced in the previous quarter, while the gold result was up from 269K ounces. The company reported just over US$1 billion in net earnings for the quarter.
In recent weeks, Sibanye Stillwater has made two important announcement regarding its ongoing efforts at asset acquisition. In the first, from the end of January, the company announced that it had terminated plans to acquire nickel and copper mines in Brazil. The termination was due to discovery of a geotechnical event at the Santa Rita nickel mine.
In the second announcement, made earlier this month, Sibanye Stillwater completed its purchase of the Sandouville nickel hydrometallurgical processing plant located in Normandy, France. The purchase, for 85 million Euros, further advances the mining company’s battery metal processing operations.
As a policy, Sibanye Stillwater aims to return between 25% and 35% of earnings to shareholders. The company does this in part through a common share dividend, paid out twice yearly. The last dividend, paid out in September, was for 19 cents per US common share, or 77 cents per American Depositary Receipt. This ADR dividend, annualized to $1.54, gives a yield of 9.4%.
Deutsche Bank analyst Abhinandan (Abhi) Agarwal takes a bullish stand on SBSW shares, writing, “We see several near- and long-term catalysts for Sibanye. In the near term, we forecast a rebound in PGM demand in 2022 as auto production cuts reverse (+10%YoY jump in 2022), which should drive PGM prices. The solid balance sheet and FCF generation positions Sibanye well to continue to return sector-leading cash to shareholders (we forecast cash returns at ~8% pa vs. peers at 3-4%).”
“We remain structurally positive on battery metals (copper & lithium) and see the increasing EV penetration as a secular demand driver,” the analyst added.
Given all of the above, Agarwal has high hopes. Along with a Buy rating, he keeps a $18.50 price target on the stock. This target puts the upside potential at ~13%. (To watch Agarwal’s track record, click here)
Overall, this stock gets a firm seal of approval from Wall Street, as shown by the unanimous Strong Buy consensus rating based on 4 positive reviews. The stock is selling for $16.38, and the average price target of $20.13 indicates room for ~23% upside in the year ahead. (See SBSW stock forecast on TipRanks)
Sabra Healthcare REIT (SBRA)
Now we’ll switch gears, and take a look at a real estate investment trust. It’s impossible to avoid these companies in a discussion of dividend stocks; REITs are well-known as reliable, high-yield dividend payers. Their dividend reputation stems from a requirement in tax regulations that they return a high percentage of earnings directly to shareholders.
Sabra is a REIT involved in the healthcare industry. The company holds a portfolio of 421 properties, including leased and managed senior housing, skilled nursing and transitional care centers, and specialty hospitals. The company’s properties are leased to known profitable entities, and give Sabra a market cap of $2.92 billion.
While Sabra has been generally successful in realizing solid revenues from its properties, the share price has been falling since last July. In that time, the stock is down 26%. The losses come even though the company has put up sound revenue numbers. The most recent, from 3Q21, came in at $128.5 million for the quarter and $433.8 million for the first 9 months of the year. We’ll see Q4 numbers later this month.
In a key metric, the company’s normalized FFO (funds from operations) came in at $84.8 million for Q3. This was enough to maintain the dividend payment of 30 cents per common share paid out in November of last year. The next dividend, also for 30 cents per common share, has already been declared for payment at the end of this month. At an annualized rate of $1.20, the current dividend gives a yield of 9.3%. Sabra has held the dividend at its current rate for two the past two years.
Looking under the hood of Sabra’s operations, Stifel’s 5-star analyst Stephen Manaker sees reason for optimism from investors. He writes, “We still assume SBRA is able to grow FFO this year. A large part of that growth will be from rent payments from a new operator running transitioned NY assets. We assume that operator starts paying in 1Q22. If we are close in that assumption (and others), our 2022 estimate implies 5.9% FFO growth. Given the stock is trading at 8.0x, we believe the valuations more than discount the operating challenges facing SBRA.”
To this end, Manaker puts a Buy rating on SBRA shares, and his $21 target price implies a one-year upside potential of 64% (To watch Manaker’s track record, click here)
Overall, this REIT holds a Moderate Buy rating from the Wall Street analyst consensus, based on 7 reviews breaking down 5 to 2 in favor of Buys over Holds. The stock is selling for $12.80 and its $17.14 average target suggests a 12-month upside of ~34%. (See SBRA stock forecast on TipRanks)
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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.