You don’t get to head one of the world’s largest banks if you don’t know a few things about economics – and so when J.P. Morgan’s CEO Jamie Dimon speaks, investors listen. And lately, what Dimon has to say isn’t nice to hear.
“We’re just getting closer to what you and I might consider bad events,” was the warning Dimon issued on J.P. Morgan’s earnings call last week.
So, what are these bad events, then? The CEO thinks another 20% decline for the S&P 500 is not out of the question, a drop which will be a “lot more painful than the first” while Dimon is also seeing “early signs of distress,” noting that in many markets there is a “lack of liquidity.” Tech valuations are down already, you say? True, but they could “come down” more.
“This is serious stuff,” Dimon added. “Inflation, rates going up more than people expected and probably a little bit more from here, quantitative tightening which we’ve never had before, and the war. These are very, very serious things which are likely to push the US into some kind of recession, six, nine months from now.”
So, what is an investor to do with all this doom and gloom talk? Well, it should prompt a natural turn toward defensive stocks, and especially to the reliable dividend payers. We’ve opened up the TipRanks database to pull the details on two such equities that offer a combination of Strong Buy consensus ratings, decent upside potential, and dividend yields high enough to provide to protection against rising inflation. Let’s dive in.
Enterprise Products Partners (EPD)
We’ll start with Enterprise Products Partners, an energy industry midstream company with a reputation for reliable, high-yielding dividend payments. Enterprise, as a midstream firm, makes its business moving hydrocarbon products from well-heads through transport networks to the tank farms, storage facilities, terminal points, and refineries that store and use the product. Enterprise’s network moves crude oil, natural gas, and natural gas liquids; the scale of business is clear from the company’s $55 billion market cap.
Enterprise is set to release its Q3 financial results early next month, but we can look back at the Q2 results, and the current dividend declaration, to get a solid feel for this stock and its attraction for investors. In the Q2 release, EPD showed a top line of $16 billion, up an impressive 68% year-over-year. Net income was reported at a record $1.44 billion, up 26% y/y, and gave an EPS of 64 cents. The EPS was up 28% from the year-ago quarter.
These sound results came along with a 30% y/y increase in distributable cash flow, which reached a company-record of $2 billion in 2Q22. The high distributable cash flow supported a 5.6% bump in the quarterly dividend, to 47.5 cents per common share. That dividend was reiterated in the Q3 declaration, made on this past October 4, and is scheduled for payment on November 14. At its current rate, the dividend annualizes to $1.90 per common share and gives a yield of 7.5%. This yield is almost 4x higher than the market average – and high enough to provide some protection from inflation. Of note for dividend investors, Enterprise has raised its dividend every year for the past 24 consecutive years.
Covering EPD for RBC Capital, 5-star analyst TJ Schultz notes that the solid financial performance was ahead of expectations and goes on to say, “EPD is well on its way to hit $9B of EBITDA this year, with record DCF allowing balance sheet improvements, increased distributions, unit buybacks, and growth investments (three new Permian projects announced). We think EPD can comfortably grow with a less burdensome capital structure and maintain its commitment of distributions to investors.”
To this end, Schultz rates EPD an Outperform (i.e. Buy), and his price target of $34 indicates his belief in a 34% one-year upside for the stock. (To watch Schultz’s track record, click here)
Overall, with 8 positive analyst reviews on file against 1 lone fencesitter, Enterprise gets a Strong Buy consensus rating from Wall Street. The stock is selling for $25.50 and its average price target of $32.25 suggests a potential gain of 26% on the one-year horizon. (See EPD stock forecast on TipRanks)
Iron Mountain, Inc. (IRM)
For the second stock, we’ll switch our focus to the information sector, where Iron Mountain is a leader in the data management industry. The company boasts an enterprise customer base exceeding 225,000 – and including some 95% of the Fortune 1000 firms. Iron Mountain claims a 98% customer retention rate, annual revenues over $4.2 billion, and a market cap of $13 billion.
The company has reached this scale through offering a wide range of information and data management services to its customers, including data backup and recovery, information destruction, and records management. These are essential services, even if they’re easily overlooked, and Iron Mountain has leveraged them for steady ongoing sequential revenue gains.
In the company’s last reported quarter, 2Q22, the top line came in at $1.29 billion, for a year-over-year gain of 15%. Net income came in at $202 million, down 27% from the year-ago quarter, although adjusted EPS, at 46 cents per share was up 21% from the 38-cent EPS reported in 2Q21.
For dividend investors, however, the key metric may be the adjusted funds from operations, or AFFO, which supports the regular quarterly dividend payments. This grew 10% y/y to reach $271 million, or 93 cents per share. The dividend backed up by this AFFO was last declared on August 4 for 61.85 cents per common share, and was paid out on October 4. The dividend has been held at its current level since October of 2019. The annualized dividend rate, at $2.474, gives a yield of 5.3%.
Analyst Steve Sakwa covers this stock for Evercore ISI, and likes what he sees in the company’s path forward.
“IRM continues to focus on new initiatives to drive value add services to its existing customer base. Its diversified business lines surrounding existing business relationships is a key strategy that differentiates IRM with other players and creates synergies. Going forward, the company will focus on providing integrated solutions to its customers to maximize value creation. The growth outlook through 2026 is favorable with global RIM business outlook remaining stable and data center and ALM business growing fast,” Sakwa opined.
These comments back up Sakwa’s Outperform (i.e. Buy) rating on IRM shares, and his $63 price target implies a potential gain of 35% in the next 12 months. (To watch Sakwa’s track record, click here)
All in all, Iron Mountain gets a Strong Buy consensus rating from the Wall Street analysts, based on 4 unanimously positive reviews. The shares have a trading price of $47.13, and their $60.50 average price target suggests a 30% one-year upside potential. (See IRM stock forecast on TipRanks)
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Disclaimer: The opinions 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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