2 Blue Chip Dividends yielding up to 7%. Analysts say ‘Buy’

In poker, blue chips have the highest value and the name has become associated with the highest quality stocks. Blue chips have a reputation for holding value and providing a degree of protection to investors’ portfolios, making them attractive in a time of increased market volatility and generally falling stock prices.

Blue chip dividend payers are particularly attractive as they combine the twin pillars of quality and long-term payout reliability.

So let’s follow that line and take a look at two of the highest quality dividend stocks out there. These are stocks with a long history of maintaining reliable payouts, more recent histories of dividend increases, and yields high enough to provide a degree of insulation against the current rate of inflation. It also doesn’t hurt that both stocks are admired by the analyst community, just enough to earn a consensus “Strong Buy” rating.

Enterprise Products Partners (EPD)

The first stock we’ll look at, Enterprise Products, is a midstream company in the energy industry. Its business is to transport products, getting crude oil, natural gas and natural gas liquids out of the ground from producers from wellheads and into the transportation network of pipelines and transportation terminals and into the infrastructure of storage tanks and refineries.

Enterprise’s assets include an extensive network of pipelines and storage sites, stretching from Pennsylvania’s Appalachian gas fields, the Great Lakes region, the Southeast and the Rockies, to Texas and the Gulf region, where processing facilities, storage farms, refineries and import/export terminals. It’s a large-scale business, and Enterprise has a market capitalization of over $55 billion.

More important than its business network or company size, Enterprise has seen its shares gain in this year’s choppy trading, with a net gain of 27% year-to-date.

These stock gains have come as the company’s revenue and earnings have also increased. In its most recent quarterly earnings call, from 2Q12, Enterprise reported a top line of $16 billion, significantly higher than the $9.4 billion reported in the previous quarter, a 70% year-over-year increase. The company’s earnings, net income attributable to shareholders, were reported at $1.4 billion, or 64 cents per share, a gain of 25% annually.

Enterprise is clearly confident after about two years of peaking and final status. The company’s management increased the dividend payment in the last statement, by ~6%, to 0.475 per common share. This payout, released on August 12, amounts to $1.90 annually and yields 7.2%. Enterprise has a 14-year history of dividend growth and reliability.

All of this has caught the attention of Truist analyst Neal Dingmann, who holds a 5-star rating from TipRanks. Dingmann is impressed by the expansion of Enterprise’s operations and writes, “EPD continues to see strong activity in its pipelines and storage with potential for even more natural gas plant/fractionators. Additionally, we expect little to no slippage in the $5.5 billion in projects, with the majority coming on stream next year. The Company maintains a stable, strong FCF generating business while continuing to receive positive results from pricing spreads and commodity-based contracts.”

“However,” the analyst summed up, “we believe the market has not given EPD enough credit for its strong spreads and bullish commodity-based contracts.”

Dingmann’s bullish outlook leads him to rate the stock Buy, and his $33 price target implies ~25% upside over the next year. Based on the current dividend yield and expected price appreciation, the stock has a ~32% potential total return profile. (To watch Dingmann’s record, Click here)

Overall, Enterprise has a strong Buy consensus from Street analysts, and this rating is a consensus, based on 9 positive reviews in the past few weeks. Shares are selling for $26.36, and the average target price of $32.78 suggests room for a 24% stock gain over the next year. (See EPD Stock Prediction at TipRanks)

Gaming and Leisure Properties (GLPI)

The second stock we’ll look at is a real estate investment trust, a REIT, a class of companies long known as strong dividend payers. This company, Gaming and Leisure Properties, puts a twist on the REIT model by focusing its investments on acquiring and leasing properties for gaming operators. Gaming and Leisure has 57 properties leased to leading casino and gaming companies in 17 states.

Gaming and Leisure has been modestly up this year, with shares up around 5%. This outperformance of the general markets coincided with both solid revenue and profit numbers, as well as an increase in casino gaming businesses as the economy reopened after the pandemic.

In 2Q12, consistent with the last quarter, GLPI posted a top line result of $326.5 million, up a modest 2.7% year-on-year. These revenues supported net income of $155.8 million, up more than 12% from net income of $138.2 million in the prior quarter. Per share, diluted EPS was 61 cents, roughly in line with 59 cents from 2Q11.

GLPI’s Board of Directors increased the dividend payment earlier this year, from 69 cents to 70.5 cents per common share. The dividend for Q2 was held at this level, which is $2.82 per common share and yields 5.7%. Gaming and Leisure has a track record of maintaining reliable quarterly dividend payments since 2014.

In coverage of this stock, 5-star analyst Joseph Greff of JPMorgan explains how GLPI’s model helps secure the cash flow needed for a stable dividend: “We continue to like the stability of its triple net lease REIT business model GLPI and its attractive, safe and potentially growing dividend given its strong tenant profile and rolling rental scales and M&A-related growth, supported by a strong balance sheet. This will create an attractive risk reward especially for risk-averse investors, with stability in rental income that will continue to generate attractive free cash flow to be used in tax-efficient return of capital, with an attractive dividend yield.”

Greff follows those comments with an Overweight (i.e. Buy) rating on the stock, and his price target, now set at $57, implies a 15% upside over the next 12 months. (To follow Greff’s history, Click here)

Overall, out of the 12 recent analyst ratings listed for GLPI, 10 are Buys and just 2 are Holds (ie neutral), giving the stock a Strong Buy consensus. The stock’s average price target of $55.40 suggests a ~12% upside from the current share price of $49.58. (See GLPI stock forecast on TipRanks)

To find good ideas for trading stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock information.

Denial of responsibility: The views 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.

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