The Federal Reserve Bank of Dallas recently forecast that home prices and rent are likely to rise in the coming months as inventory constraints weigh on the real estate industry. When viewed in the context of increasing prices of everyday goods as supply chain pressures continue to wreak havoc with the post-pandemic economic recovery, it appears increasingly likely that inflation will rise. According to the Dallas bank, rent inflation will rise from 1.9% in June 2021 to 3.0% in June 2022 and 6.9% by June 2023, the highest in three decades.
Although these numbers are not positive for the overall economy, they may be good news to value investors. Growth stocks have enjoyed a record rally in the past few months, with even the pandemic pushing some growth equities to new highs as the digital economy kicked in during lockdowns. As inflation rises, value plays will start outperforming the growth-heavy S&P 500 benchmark. Investors who are eager to shield their portfolios from some of the risks outlined above should consider some solid dividend stocks to weather the coming storm.
Some of the top dividend stocks with high yields include Johnson & Johnson (NYSE:JNJ), The Procter & Gamble Company (NYSE:PG), The Coca-Cola Company (NYSE:KO), Two Harbors Investment Corp. (NYSE:TWO), Vale S.A. (NYSE:VALE), and BHP Group (NYSE:BHP), among others discussed in detail below.
Dividend Stocks With Over 10% Yield
Number of Hedge Fund Holders: 3
Forward Dividend Yield: 10.09%
NuStar Energy L.P. (NYSE:NS) engages in the storing and marketing of petroleum products. The stock has gained 56% year-to-date as the prices of crude touch new highs. The company recently posted earnings for the third quarter, reporting a revenue of $412 million, up 13% year-on-year and beating estimates by $33 million. The firm also revealed that it planned to spend around $200 million on strategic and reliability capital in 2021.
On August 2, investment advisory JPMorgan assumed coverage of NuStar Energy L.P. (NYSE:NS) stock with a Neutral rating and a price target of $20. Jeremy Tonet, an analyst at the advisory, issued the ratings update.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Zimmer Partners is a leading shareholder in NuStar Energy L.P. (NYSE:NS) with 1.1 million shares worth more than $20 million.
9. Telefónica, S.A. (NYSE:TEF)
Number of Hedge Fund Holders: 4
Forward Dividend Yield: 10.70%
Telefónica, S.A. (NYSE:TEF) provides telecommunication services. It primarily operates in Latin America and parts of Europe. There are reports that the company is exploring the sale of the fiber network business in Spain for around €15 billion. The sale of the asset will likely be directed towards debt reduction of the firm. Telefónica recently announced that it would be partnering with CyberArk to deliver a new set of cybersecurity solutions to consumers.
Telefónica, S.A. (NYSE:TEF) has also recently partnered with Oracle, announcing in late September that it would be moving the bulk of database systems it owns to a cloud network of Oracle under a multi-year deal.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Telefónica, S.A. (NYSE:TEF) with 1.6 million shares worth more than $7 million.
8. Icahn Enterprises L.P. (NASDAQ:IEP)
Number of Hedge Fund Holders: 4
Forward Dividend Yield: 13.94%
Icahn Enterprises L.P. (NASDAQ:IEP) operates as an industrial conglomerate and is based in Florida. The company has interests in businesses as varied as investment, energy, automotive, food packaging, and pharma, among others. It has an impressive dividend history and recently declared a quarterly dividend of $2.00 per share, in line with previous. It also beat market estimates on revenue for the third quarter by $10 million.
In late October, Icahn Enterprises L.P. (NASDAQ:IEP) announced that it would be selling 100% of equity interests in PSC Metals, a scrap metal processor, to SA Recycling for $290 million. The deal is expected to be closed by the end of the year.
7. Sibanye Stillwater Limited (NYSE:SBSW)
Number of Hedge Fund Holders: 15
Forward Dividend Yield: 11.66%
Sibanye Stillwater Limited (NYSE:SBSW) operates as a precious metals mining company. Deutsche Bank analyst Abhi Agarwal recently initiated coverage of the stock with a Buy rating and a price target of $19, underlining that the firm was poised to generate attractive free cash flows in the coming years as a result of new acquisitions. The company has a market cap of $10 billion and posted over $8 billion in revenue last year.
Sibanye Stillwater Limited (NYSE:SBSW) announced in mid-September that it had agreed to acquire one half of the Nevada lithium project from Ioneer for $495 million. The deal is the largest ever for the metal which is used to power batteries.
In its Q1 2021 investor letter, Desert Lion Capital, an asset management firm, highlighted a few stocks and Sibanye Stillwater Limited (NYSE:SBSW) was one of them. Here is what the fund said:
“Sibanye is a South African gold and platinum group metals (“PGM”) producer with mines in South Africa and the U.S. Established in 2012, it has since become one of South Africa’s largest gold producers and the largest PGM producer in the world. Sibanye also operate a PGM recycling facility and own a majority interest in DRDGOLD, a specialist in the recovery of gold and other precious metals from open pit tailings.
The investment thesis incorporates the following logic:
If central banks globally are going to continue printing money unabated, precious metals prices should rise.
The drive for cleaner and greener is accelerating. The market for platinum, palladium and rhodium is structurally attractive.
The company is generally mischaracterized. Ask around, and one will find that most people still refer to Sibanye as “a South African gold miner” with “lots of debt from that Stillwater acquisition.”
It is not quick and easy to ramp up PGM supply in response to higher demand and prices. Favorable supply-demand characteristics will likely remain favorable for longer.
Bad capital allocation decisions, corporate excesses, and resultant tarnished reputations from the previous boom period are still fresh in the minds of most mining executives. Neal Froneman has proven himself a disciplined capital allocator. His approach to capital allocation is straightforward: deploy capital at expected returns that enhances value to shareholders or distribute it via dividends and buybacks.
The company is debt-free and generating heaps of cash.
The valuation is cheap. At current metal prices, Sibanye is trading at about 5 times after-tax cash profits.
Sibanye is effectively a call option on a potential commodity super cycle. In the meantime, the value of our “option” is unlikely to deteriorate as we are rewarded with healthy dividend flows.”
6. Gerdau S.A. (NYSE:GGB)
Number of Hedge Fund Holders: 17
Forward Dividend Yield: 11.90%
Gerdau S.A. (NYSE:GGB) markets steel products and related services. It has benefited from the recent increase in steel prices, although analysts like Morgan Stanley have cautioned that the prices may have peaked. The company posted earnings results for the third quarter in late October, reporting a revenue of R$21 billion, up more than 74% compared to the revenue over the same period last year.
Credit Suisse analyst Caio Ribeiro recently upgraded Gerdau S.A. (NYSE:GGB) stock to Outperform from Neutral and increased the price target to R$39.50 from R$37, predicting that the firm would post a solid free cash flow yield in 2022.
Among the hedge funds being tracked by Insider Monkey, Greenwich-based firm Contrarian Capital is a leading shareholder in Gerdau S.A. (NYSE:GGB) with 20 million shares worth more than $121 million.
5. Annaly Capital Management, Inc. (NYSE:NLY)
Number of Hedge Fund Holders: 19
Forward Dividend Yield: 10.35%
Annaly Capital Management, Inc. (NYSE:NLY) operates as a diversified capital manager and is based in New York. The company beat market estimates on earnings per share by $0.01 in the third quarter. The firm grew the portfolio it owns by around $3 billion between June and September. David Finkelstein, the CEO of the firm, said during the earnings call that the firm grew the portfolio by redeploying proceeds from commercial real estate ventures.
Annaly Capital Management, Inc. (NYSE:NLY) stock has pulled back in recent weeks on the back of uncertainty around the rise in interest rates. Piper Sandler analyst Kevin Barker has a Neutral rating on the stock with a price target of $8.50.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Arrowstreet Capital is a leading shareholder in Annaly Capital Management, Inc. (NYSE:NLY) with 4.2 million shares worth more than $37 million.
4. Rio Tinto Group (NYSE:RIO)
Number of Hedge Fund Holders: 21
Forward Dividend Yield: 11.03%
Rio Tinto Group (NYSE:RIO) operates as a diversified metals and mining company. The firm is one of many mining stocks that have pledged to improve sustainable practices in the business. The company recently announced that it would be spending $7.5 billion on different projects through 2030 as part of a plan to decarbonize assets. The plan also envisions a 50% reduction in operational emissions during the period.
Rio Tinto Group (NYSE:RIO) stock has fallen in the past few days as China halts the production of steel and iron ore prices jump to new lows. Slowing demand for the metal has also played a part in the Chinese decision to halt production, reports suggest.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Rio Tinto Group (NYSE:RIO) with 12.9 million shares worth more than $1 billion.
3. BHP Group (NYSE:BHP)
Number of Hedge Fund Holders: 24
Forward Dividend Yield: 11.21%
BHP Group (NYSE:BHP) also operates as a mining firm. It is also pursuing a new climate change plan, approved by shareholders in mid-October, with a goal of net zero emissions for suppliers and shippers associated with the firm by 2050. Deutsche Bank analyst Liam Fitzpatrick recently named the stock among a list of short-term investment ideas, noting the rally in energy and coal prices as growth drivers for the firm.
There are reports that BHP Group (NYSE:BHP) is planning to invest in a copper project in Congo. The company has typically stayed away from partnerships in risky areas, instead preferring to operate in developed countries.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in BHP Group (NYSE:BHP) with 8 million shares worth more than $594 million.
In its Q1 2021 investor letter, Harding Loevner, an asset management firm, highlighted a few stocks and BHP Group (NYSE:BHP) was one of them. Here is what the fund said:
“Our purchase of Australian mining company BHP is an example of a quality company at a moderate valuation that should deliver attractive long-term returns. We believe the market has undervalued its enduring competitive advantage due to its low cost iron and copper mining operations which has allowed the company to deliver consistent profits and cash flows across the inevitable ups and downs of the global metals cycle. While the variability of commodity prices prevents BHP from scoring in the top ranks of measured quality, we are willing to bear some of that uncertainty in return for a more attractive valuation given the company’s strong business fundamentals.”
2. Vale S.A. (NYSE:VALE)
Number of Hedge Fund Holders: 27
Forward Dividend Yield: 22.43%
Vale S.A. (NYSE:VALE) produces and sells iron ore that is used to make steel products. It also has interests in the mining of other metals. The company is one of the biggest mining firms in the world with a market capitalization of more than $63 billion. It posted earnings for the third quarter in late October, reporting a revenue of $12.6 billion, up more than 17% compared to the revenue over the same period last year.
Vale S.A. (NYSE:VALE) has plans to exit the coal industry and has invited bids for the coal business. The exit and sale are part of a plan to achieve certain environmental goals ahead of stated targets.
Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm GQG Partners is a leading shareholder in Vale S.A. (NYSE:VALE) with 43 million shares worth more than $998 million.
1. Two Harbors Investment Corp. (NYSE:TWO)
Number of Hedge Fund Holders: 30
Forward Dividend Yield: 10.63%
Two Harbors Investment Corp. (NYSE:TWO) invests in residential mortgage-backed securities. The company recently priced a $30 million stock offering. The proceeds from the offering will be directed towards the purchase of target assets. The firm also has a solid dividend history and recently declared a quarterly dividend of $0.17 per share, in line with previous. The stock stands to benefit as rents surge across the US.
Two Harbors Investment Corp. (NYSE:TWO) has a market cap of $2 billion. The short interest on the stock is high at around 5% and the 52-week price range of the share lies between $5.28 and $8.15. It is presently trading at $6.37 per share.
At the end of the second quarter of 2021, 30 hedge funds in the database of Insider Monkey held stakes worth $160 million in Two Harbors Investment Corp. (NYSE:TWO), down from 32 in the preceding quarter worth $200 million.
