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Top Wall Street analysts favor these 3 dividend stocks for the long haul

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A person walks by a CVS pharmacy store in Manhattan, New York, U.S., November 15, 2021.
Andrew Kelly | Reuters

Several dividend stocks had a rough year due to elevated interest rates. With the Federal Reserve signaling rate cuts in 2024, dividend stocks are expected to regain their shine.

Keeping a long-term investment horizon in mind, here are three attractive dividend stocks, according to Wall Street’s top experts on TipRanks, a platform that ranks analysts based on their past performance.

OneMain Holdings

This week’s first dividend pick is OneMain Holdings (OMF), a financial services company that provides non-prime customers access to credit. Last month, the company paid a quarterly dividend of $1 per share. OMF offers an attractive dividend yield of about 9%.

Following the company’s recent Investor Day, RBC Capital analyst Kenneth Lee reiterated a buy rating on OMF stock with a price target of $50. The analyst stated that following the event, he is more confident about the company’s underwriting and analytics, and has gained additional insights into the benefits of its omnichannel presence.

In particular, OMF’s management indicated that the company’s underwriting models, which leverage machine learning, alternative data, and cash flow data, have two times more predictive power than bureau credit scores. Lee also highlighted that the company’s recent entry into auto financing has significantly expanded its total addressable market to about $1.3 trillion.

The company expects its annual capital generation per share to be about $12.50 in the medium term, with nearly 5% capital generation return on receivables. “Importantly, after factoring in capital retained for organic growth and paying dividends, there could be ~$6/share in excess capital generation annually,” said Lee.

Lee ranks No. 115 among more than 8,600 analysts tracked by TipRanks. His ratings have been profitable 65% of the time, with each delivering an average return of 14.3%. (See OneMain Financial Statements on TipRanks) 

CVS Health

We move to the retail pharmacy chain CVS Health (CVS), which announced an around 10% hike in its quarterly dividend to 66.5 cents earlier this month. With this hike, the company’s forward dividend yield stands at about 3.5%.

CVS hosted its Investor Day on Dec. 5. Following the event, Mizuho analyst Ann Hynes noted that the company’s long-term adjusted EPS growth floor of over 6% was below her high-single-digit forecast.

That said, Hynes sees the possibility of an upside to the company’s guidance if it gains market share through the execution of its growth strategies and the success of the new pharmacy reimbursement model. The analyst also expects CVS’ focus on health care delivery to boost its growth, as the company continues to enhance its Signify and Oak Street businesses.     

“CVS remains committed to a balanced capital deployment strategy with growing dividend,” added Hynes.

Notably, the company expects to have $40 billion to $50 billion of deployable cash from 2024 to 2026, with an expected annual average free cash flow of $7 billion. It intends to allocate 35% towards capital expenditures and 25% towards dividends, with the remaining 40% available for flexible deployment, including share repurchases.

Overall, Hynes remains bullish on CVS and reaffirmed a buy rating on the stock with a price target of $86. Hynes holds the 489th position among more than 8,600 analysts on TipRanks. Her ratings have been successful 61% of the time, with each delivering a return of 7.2%, on average. (See CVS Insider Trading Activity on TipRanks).

Devon Energy

Last month, oil and gas producer Devon Energy (DVN) declared a fixed plus variable dividend of 77 cents per share, payable on December 29. This dividend payment marked a 57% increase from the second quarter of 2023. Considering total dividends of $2.87 declared over the past 12 months, DVN offers an attractive yield of 6.5%.

Recently, Goldman Sachs analysts, led by Neil Mehta, hosted meetings with Devon’s management. Importantly, management acknowledged that 2023 has been a challenging year for the company with negative revisions to production, partly due to underperformance in the Bakken region and well selection and appraisal activity in the Delaware basin (including weather-related issues) and Eagle Ford.

That said, Mehta highlighted that management sees the opportunity to regain its capital efficiency relative to peers in 2024, by allocating more capital to the Delaware basin than to Bakken.

DVN reiterated plans to allocate 70% of its 2024 free cash flow towards cash returns, with the intention of growing the fixed dividend and deploying excess FCF towards share repurchases and variable dividends. The analyst noted that management plans to prioritize share repurchases over variable dividends, given that DVN stock has underperformed its large-cap peers year-to-date.

Mehta reiterated his rating on Devon stock with a price target of $52, saying, “We are Buy-rated on the shares and see potential for mean reversion with favorable production/cost execution.”

Mehta ranks No. 346 among more than 8,600 analysts tracked by TipRanks. His ratings have been profitable 61% of the time, with each delivering a return of 10.6%, on average (See Devon Energy Technical Analysis on TipRanks) 

  

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