The August market appears to have bottomed out two weeks ago, and since then, stocks have recovered most of this month’s losses. This change has renewed positive sentiment for investors, which has been at year-highs and a strong rally is expected to intensify.
However, there is still a headwind in the wings. Writing from Raymond James, CIO Larry Adams noted that despite lower inflation, uncertainty and fiscal dynamics could weigh on the overall economy. In particular, Adam said, ‘structural changes’ such as supply chain disruptions, labor conflicts and energy transitions make it difficult to predict future inflation. He also cited a widening federal deficit — as the Treasury announced nearly $2 trillion in new borrowing for 2H23 — as fears of further federal credit crunches or government shutdowns.
In short, while there is reason for optimism, there are clouds on the horizon. The question is whether these clouds will converge into a dangerous storm front.
Against this backdrop, Raymond James 5-Star analysts are taking a rational stance in the face of an uncertain investment environment and are tagging high yields. Divided shares Winners going forward as. These are buy-rated stocks with potential dividends of up to 10%. Let’s take a closer look and find out what else caught the attention of Raymond James analysts.
Golub Capital BDC (GBDC)
We start with Golub Capital, a business development company that provides capital, credit and financing services to small and medium-sized businesses in the middle market sector. These are the small businesses that have traditionally driven the growth of the American economy, and companies like Golub play a vital role in providing the banking services that are essential to their survival and growth.
The majority of Golub’s portfolio consists of first-time loans, which account for 85% of the total. The remaining 9% of the portfolio consists of first lien traditional senior notes and 5% is in equities. In terms of sectors, Golub shows a preference for software companies, which account for 27% of the portfolio. Healthcare providers and service companies accounted for 8%, while several other sectors, including insurance, IT services and specialty retail, contributed 5% each.
In its latest financial report for Q3 of fiscal year 2023, Golub Line’s total investment income stood at $154.72 million. That was an increase of more than 5% from the previous quarter and surpassed estimates by more than $5 million. On the bottom line, Golub reported net investment income of 43 cents, compared to 41 cents in the same quarter last year and beating forecasts by one cent.
Golub’s earnings more than fully covered the company’s dividend, which rose more than 12 percent last year to a new base of 37 cents a share. The company is scheduled to pay its next dividend on September 29. At an annual rate of $1.48, this yields a 10.3 percent yield. In addition, the dividend will get a 4-cent dividend boost.
For Robert Dodd, a 5-star analyst at Raymond James, the high dividend is one of the important attractive features of Golub shares. Writing about the stock, “the company has announced two material initiatives that will benefit shareholders: a lower base management fee (returning to the group’s leading position), as well as a higher base dividend and a new additional distribution program.” In addition, credit metrics have improved across all major metrics, leading BDC to outperform going forward. We see an improved future return profile and attractive risk/return.
Looking ahead, Dodd continues to give GBDC an Outperform (i.e. Buy) rating, and a $15.50 target price indicating ~8% upside from current levels. Based on the current dividend and expected inflation, the stock has a total return profile of ~18%. (To see Dodd’s record, Click here)
Overall, this stock carries a moderate consensus rating of Buy from Street analysts based on 5 recent ratings, which include 3 Buys and 2 Holds. (look out GBDC stock forecast)
Flushing Financial Corporation (F.I.C)
Raymond James’ next top dividend stock pick is Flushing Financial Corporation, a bank holding company. This corporation serves as the parent company for Flushing Bank, a New York-based bank with offices in various locations around New York City, including Manhattan, Queens, Brooklyn and Long Island. In the year Founded in 1929, Flushing Financial Corporation (FFC) is a long-established bank with a current capitalization of $408 million.
Operating on a B2C basis, Flushing Financial Corporation offers comprehensive personal and business banking services through its bank branch, along with credit services such as checking and savings accounts, CDs and cash management. Secure mobile applications provide online banking services tailored to meet the needs of business banking.
In July of this year, Flushing Financial made an exciting announcement – it acquired the commercial real estate lending group from the now defunct Signature Bank. Firma was one of the smaller regional banks that collapsed in March this year, an event that sparked fears of a banking meltdown. The March banking crisis was short-lived, and Flushing Financial had some leverage in the form of an experienced commercial real estate team to expand its CRE lending business.
In 2Q23, the most recently reported quarter, the company’s bottom line, at 26 cents per share in non-GAAP measures, grew 160% over the quarter. This is a significant difference from the 63 percent decrease from year to year and is taken as an indication that the bank’s income has turned a corner.
The improvement in EPS fully covered the Q2 dividend of 22 cents per share. The next payment, of 22 cents per common share, is scheduled for September 29. The annual rate of 88 cents yields 6.23%.
Raymond James 5-star analyst Steve Moss, covering Flushing Financial, sees the company’s ‘earnings challenges’ tied to the Fed’s interest rate cycle, and the dividend looks reasonable for the bank. In a recent note, he wrote: “FFIC is positioning itself for the future as recent swap transactions moderate income and buy the bank’s short (~3-year) loan portfolio to support higher profitability over time.” FFIC earnings challenges are driven by interest rates, and earnings should improve as the Fed’s tightening cycle ends or interest rates are cut.
“Given TBV’s 62 percent capitalization, which we believe is a sustainable dividend given the bank’s strong capital position and credit quality, the risk reward is particularly attractive to those looking to benefit from a policy shift by the Federal Reserve. Moss summed it up.
For the analyst, this view supports an Outperform (i.e. Buy) rating on the stock, while the $17 price target reflects confidence in a 20% one-year upside potential. (To see Moss’ track history, Click here)
Here are the 3 most recent analyst reviews on the stock for an intermediate buy deal, buy one and hold 2. (look out FFIC stock forecast)
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Disclaimer: The opinions expressed in this article are those of the featured analysts only. The content is intended for informational purposes only. It is very important to do your own analysis before making any investment.
