What do you think of roller coasters? We may be in for one in 2022, with the markets showing higher volatility – and perhaps a lower net gain – than last year. Headwinds include rising inflation, the Fed’s likely actions to tighten monetary policy in response, and increased labor costs. Tailwinds may include…
that same Fed action, as it carries potential to blunt a ‘stagflationary’ period, and a likely political shift waiting in the fall.
Writing from Wells Fargo, senior equity strategist Christopher Harvey is expecting that the market will experience a correction, that is, a drop of 10%, by mid-year: “Pullbacks will likely be more frequent in this choppier equity market. Ultimately, the bend-but-not-break market mentality finally fails investors in 2022 in our view.”
Harvey’s view includes several causative factors, which he lists clearly, writing, “Labor costs accelerate as retirements accelerate and white-collar workers capitalize on the relatively low friction associated with working from home for another employer… Earnings continue to move higher, but multiples do not. A combination of decelerating growth, hawkish Fed, peak pricing, and a belief that longer term US growth has not improved drives multiple compression and frustrates bulls.”
At the same time, Harvey points out that the mid-term elections – which usually favor the party out of power – are setting up to be a smash-up for the Democrats and writes, “The GOP will gain control of Congress, adding perhaps two Senate seats and 25-30 House seats… This sets up a late-year rally as SPX history has favored Republican Senate control…”
For investors, the prospect of an uncertain and volatile market climate gives a clear impetus toward defensive positions, and that will naturally get them looking to dividend stocks. These are the classic plays to protect the portfolio from market pullbacks and volatility, and for good reason. A reliable dividend provides a steady income stream no matter where the market goes.
Using TipRanks’ database, we’ve pulled up the info on two dividend stocks that have gotten the thumbs-up from Harvey’s colleagues at Wells Fargo. These are high-yield payers – in the range of 7% or better – high enough to stay attractive even when the Fed starts raising rates. Here are the details.
Black Stone Minerals (BSM)
We’ll start with Black Stone Minerals, a hydrocarbon exploration and development company – which is really just a fancy way to say Black Stone buys land holdings in regions rich in oil and natural gas, and profits from the exploitation of those resources. The company’s land holdings encompass over 20 million acres across 60 production basins in 40 states, giving Black Stone a flexible portfolio of active assets.
The value of the holdings can be seen from the steadily rising top line. Black Stone has seen five consecutive quarters of sequential revenue gains, with the recent 3Q21 result, over $137 million, the highest in the past two years.
In production terms, Black Stone reported 33 million barrels of oil equivalent per day (MBoe/d) in Q3 royalty volume, up from 31.1 million in the year-ago quarter. Total production was reported at 38 MBoe/d.
The company’s solid production and royalty foundation gives it confidence to maintain its dividend payment. The most recent declaration, at 25 cents per common share, annualizes to $1 per share and gives a yield of 7.4%. This compares favorably to average div yield on the broader markets, which stands between 1.5% and 2%. Critically important, the dividend payment was higher than had been expected; it was composed of a regular dividend and a special distribution. The dividend was paid out in November, with the next payment likely in February.
Well Fargo analyst Joseph McKay takes a…
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