3 High-Yield Dividend Stocks with More Than 30% Upside

With the Federal Reserve’s tapering of its bond buying still not clearly in sight, and interest rates remaining at near-zero levels, dividend payouts are approaching pre-pandemic highs. Given this, we think that high dividend-yielding stocks BP plc. (BP), British American Tobacco (BTI), and Petrobras (PBR) could be good bets now. So, let’s examine these names.

The Fed’s anticipated bond tapering is still shrouded with uncertainty, and interest rates are still at near-zero levels. Ten-year Treasury yields have fallen to 1.32% as investors rush to bonds, driven by uncertainties surrounding the equity markets.

Meanwhile, equity dividend payouts have increased substantially in the second quarter and are expected to hit $1.39 trillion in 2021. Thus, amid the declining Treasury yields and heightened stock market volatility with the COVID-19 Delta variant threatening the economic recovery, high dividend-yielding stocks with reliable dividend-paying history could be ideal bets.

We believe BP p.l.c. (BP), British American Tobacco p.l.c. (BTI), and Petróleo Brasileiro S.A. - Petrobras (PBR) could be wise additions to one’s  portfolio now for a steady stream of income.

BP p.l.c. (BP)

BP is an oil and gas company that operates worldwide. The company operates through the following segments: Gas & Low Carbon Energy; Oil Production & Operations; Customers & Products; and Rosneft. It is headquartered in London, England.

BP’s Matapal project in Trinidad and Tobago has achieved first gas ahead of its schedule, as was reported by its subsidiary, bp Trinidad and Tobago LLC (bpTT), on September 20. This achievement is expected to support BP’s long-term growth.

BP’s $1.31 annual dividend yields 5.19% at its  current share price.

In the second quarter of 2021, BP’s total revenues and other income increased 81% year-over-year to $37.6 billion. Its profit for the period and earnings per ADS were  $3.35 billion and $0.92, respectively, up substantially from their negative year-ago values. Its total comprehensive income rose 124.8% year-over-year to $4.42 billion.

A $3.39 consensus EPS estimate for its next year (fiscal 2022) indicates a 5.6% year-over-year increase. Likewise, the  $155.06 billion consensus revenue estimate for the next year reflects a 3.3% rise from the prior-year quarter. The stock has gained 33.7% in price over the past year and 23% year-to-date. The $33.33 consensus price target indicates a 32.1% potential upside.

BP’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

BP has a Growth and Value grade of B. In the 49-stock Foreign Oil & Gas industry, it is ranked #22. To see additional POWR Ratings for Momentum, Stability, Sentiment, and Quality for BP, click here.

British American Tobacco p.l.c. (BTI)

BTI is a tobacco and nicotine product seller catering to consumers globally and distributes through retail outlets. The company is headquartered in London, the United Kingdom.

The company’s $2.90 annual dividend yields 7.90%. The company’s dividend payouts have increased at a 5.1% CAGR over the past five years. BTI has a record of two consecutive years of dividend growth.

BTI’s revenue increased 8.1% year-over-year to £12.18 billion ($16.72 billion) in the six months ending June 30, primarily attributed to a 50% rise in revenue from new categories year-over-year to £883 million ($1.21 billion). Its adjusted profit from operations rose 5.4% from the prior-year half to £5.24 billion ($7.19 billion), and its adjusted EPS increased 6.1% from the same period last year to 154.2 pence.

Analysts expect its EPS to increase 8.1% year-over-year to $4.76 in the next year (fiscal 2022). The $36.60 billion consensus revenue estimate for the next year indicates a 3.9% year-over-year increase. BTI’s stock has gained 6.1% in price over the past year to close Friday’s trading session at $36.70. The $50.12 consensus price target indicates a 36.6% potential upside.

It’s no surprise that BTI is rated “Buy” in our POWR Ratings system. It also has a B grade for Momentum, Stability, and Sentiment. In addition, BTI is ranked #4 of 11 stocks in the A-rated Tobacco industry.

In addition to the POWR Rating grades we’ve stated above, one can see BTI ratings for Growth, Value, and Quality here.

Petróleo Brasileiro S.A. - Petrobras (PBR)

PBR is an oil and gas seller. The company drills for, refines, processes, and sells crude oil. It also transports crude oil from on-shore and off-shore sites. It is headquartered in Rio De Janeiro, Brazil.

On September 1, PBR transferred 10% of its interests in the Lapa field to TotalEnergies. The transfer is aligned with the company’s goal of capital mobilization and a more optimized portfolio.

On September 10, PBR announced that it has decided to go forward with new contract models for gasoline A and road and marine diesel to fuel distributors to increase competitiveness and simplify processes. The company expects these new contracts to provide more flexibility to adjust commercial conditions in accordance with the market.

The company’s $0.91 annual dividend rate yields 9.33% in current prices. For its second fiscal quarter, ending June 30, PBR’s sales revenue increased 121.3% year-over-year to $20.98 billion. Its gross profit and adjusted EBITDA rose 216.8% and 145.6%, respectively, from the prior-year quarter to $10.82 billion and $11.75 billion. Its consolidated net income attributable to the shareholders of PBR came in at $8.12 billion, up a substantial amount from its negative year-ago value.

The Street’s  $0.53 EPS estimate for the current quarter (ending September 2021) indicates a 1,425% year-over-year increase. Likewise, the Street’s $22.8 billion revenue estimate for the current quarter reflects a 73.4% improvement  from the prior-year quarter.

The stock has gained 18.3% in price over the last year to close Friday’s trading session at $9.71. The $13.63 median price target f indicates a 40.4% potential upside.

PBR’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B.

PBR has an A grade for Quality, and a B grade for Growth. It is ranked #12 out of 49 stocks in the Foreign Oil & Gas industry.

Click here to see the additional POWR Ratings for PBR (Value, Momentum, Stability, and Sentiment).

BP shares were trading at $24.83 per share on Monday afternoon, down $0.41 (-1.62%). Year-to-date, BP has gained 25.61%, versus a 16.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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