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Should You Buy These High-Yield Stocks?

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Dividend stocks feel like a safe haven when markets turn unpredictable. After all, they offer you income with which you can hedge your bets. Or you could simply save the income for a rainy day. Or even re-invest it for further income.

And under inflationary conditions, the earnings are worth less, so these stocks usually trade at a discount, offering a great entry point for long-term investors. Whatever the strategy with respect to your portfolio, it’s worth checking out the stocks in question and not simply grab a stock because it offers a good yield.

For example, in the case of some of the stocks listed below, the companies were forced to lower the dividend when the pandemic hit their business really hard. So should you invest in these shares, or are they too risky?

My thinking is that if the earnings estimate revisions are positive, and significantly so, it’s indictive of the company climbing out of the situation. Further dividend cuts are unlikely. So if the yield is attractive, it’s probably a good time to jump into these plays.

But just to be on the safe side, make sure to choose buy-ranked stocks (Zacks ranks #1 or #2). It may also be a good idea to ensure that the value-growth-momentum (VGM) score is A or B, which usually indicates a lower-risk play. So check these out-

Sprague Resources LP (SRLP - Free Report)

Portsmouth, New Hampshire-based Sprague Resources LP stores and sells refined petroleum products and natural gas. Its products include home heating oil, diesel fuels, residual fuels, gasoline and natural gas.

The shares carry a Zacks Rank #1 and VGM Score A.

The company pays a dividend that yields 10.66%.

The Zacks Consensus EPS estimate for 2021 and 2022 are up a respective 109.8% and 48.9% in the last 4 weeks. Positive sentiments indicate that growth will continue. So dividend payment doesn’t appear to be at risk.

Valuation: Current P/E of 11.13X is below the median value of 13.90X over the past year. So the shares are undervalued.

Compass Diversified Holdings (CODI - Free Report)

Compass Diversified was formed to acquire and manage a group of middle market North American businesses and offers public investors an opportunity to participate in the ownership and growth of companies which have historically been owned by private equity firms, wealthy individuals or families.

The shares carry a Zacks Rank #2 and VGM Score A.

The company’s dividend yields 5.68%.

The Zacks Consensus EPS estimate for 2021 and 2022 are up 14.5% and 10.7%, respectively in the last 4 weeks. So there’s unlikely to be any interruption in dividend payments.

Valuation: The stock’s forward 12 months’ price to earnings (P/E) ratio, a commonly used method of valuing stocks, is 11.09X, below the median value of 12.50X over the past year. Therefore, the shares look attractive at these levels.

Energy Transfer LP (ET - Free Report)

Dallas-based Energy Transfer LP owns and operates diversified portfolios of energy assets primarily in the United States. Its core operations include complementary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, natural gas liquids and refined product transportation and terminalling assets; NGL fractionation and various acquisition and marketing assets.

The shares carry a Zacks Rank #2 and VGM Score A.

Its current dividend yields 5.93%. The dividend was halved in Nov 2020.

The Zacks Consensus EPS estimate for 2021 and 2022 are up 123.9% and 21.7%, respectively in the last 4 weeks. So there’s unlikely to be another reduction in dividend payments.

Valuation: The stock’s current P/E of 7.85X, although above the median value of 6.46X over the past year, is well below the average of 16X in our universe. So the shares cant be considered expensive.

SFL Corporation Ltd. (SFL - Free Report)

Hamilton, Bermuda-based SFL Corporation owns and operates vessels and offshore assets primarily in Bermuda, Cyprus, Malta, Liberia, Norway, the United Kingdom and the Marshall Islands.

The shares carry a Zacks Rank #2 and VGM Score A.

The company pays a dividend, that yields 6.71%. The quarterly dividend was stable at 35 cents since 2017, but there were two reductions last year to the current 15 cents.

The Zacks Consensus EPS estimate for 2021 and 2022 are up a respective 38.5% and 20.8% in the last 4 weeks. Since prospects appear to be improving, cash flow should also improve and dividend payments should continue, at least at the current level.

Valuation: At 10.46X P/E, the shares are below the median value of 12.22X over the past year. Therefore, they are rather cheap.

Suburban Propane Partners, L.P. (SPH - Free Report)

Suburban Propane Partners, L.P., a publicly traded Delaware limited partnership is engaged, through subsidiaries, in the retail and wholesale marketing of propane and related appliances and services.

The Partnership believes it is the third largest retail marketer of propane in the United States, Suburban Propane Partners serves active residential, commercial, industrial and agricultural customers from customer service centers in over 40 states. The Partnership's operations are concentrated in the east and west coast regions of the United States.

The shares carry a Zacks Rank #2 and VGM Score A.

The company’s dividend yields 8.11%. In this case too, dividend payments have been steady since 2017 but were halved last year because of the pandemic’s impact on the business.

The Zacks Consensus EPS estimate for 2021 and 2022 are up 23.2% and 11.9%, respectively in the last 4 weeks. So with things looking up again, there’s unlikely to be further reductions.

Valuation: Current P/E of 9.77X is below the median value of 12.62X over the past year, indicating that the shares are undervalued.

Year-to-Date Price Movement

 

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