The stock market closed last week on a negative note, weighed down by investor speculation that the Federal Reserve might scale back its pace of policy easing.
Federal Reserve Chair Jerome Powell, in remarks on Thursday, emphasized there was no immediate rush to lower interest rates, citing positive economic indicators. This message was reinforced on Friday by a stronger-than-expected October retail sales report.
Meanwhile, enthusiasm for President-elect Donald Trump’s pro-business agenda is fading, with growing concerns about the potential costs and inflationary risks tied to his fiscal policies.
In this environment, investors will turn toward defensive shares – and that frequently means dividend stocks. These investments offer consistent income, making them a reliable choice during periods of market uncertainty.
So, if Friday’s downbeat day has you seeking out dividends, Wall Street analysts have flagged two dividend stocks to buy, including one with a 14% yield. Let’s take a closer look, with insights drawn from the TipRanks database.
AFC Gamma (AFCG)
We’ll start with a real estate investment trust, a REIT, that operates with a bit of a twist. The company, AFC Gamma, works with the cannabis industry, where it acts as a finance provider, making available commercial real estate loans, as well as loan underwriting and other financial services. The company makes direct loans and bridge loans in the range of $10 million to $100 million – an important source of finance in an industry that is growing rapidly but is also dealing with a complex legal structure. AFC Gamma estimates that the cannabis industry has an addressable market of approximately $30 billion.
The company is based in West Palm Beach, Florida, one of the states with a legal cannabis framework, and its customer base is state-licensed cannabis operators across the country. The cannabis industry has a high overhead, as the grow facilities require a combination of large floor space and heavy use of both water and electric utilities. Access to traditional banking capital can be limited, because cannabis is illegal at the Federal level, and the states present a patchwork of different legal frameworks. All in all, AFC Gamma’s target niche is a bright opportunity for a finance company that can operate outside the banking networks – and the company’s status as the largest REIT in the cannabis industry makes it attractive to dividend investors.
AFC Gamma has been paying out dividends since 2021. The most recent declaration came in September of this year, for an October 15 payout of 33 cents per common share. The payment’s annualized rate, $1.32 per share, gives an impressive forward yield of nearly 14.3%.
The company’s dividend is supported by its financial results. In the last reported quarter, 3Q24, AFC Gamma showed distributable earnings per share, a DEPS, of 35 cents per common share, beating the forecast by a penny – and covering the dividend payment with room to spare.
Seaport analyst Sonny Randhawa highlights AFC Gamma’s strength in its niche, as well as its potential to continue generating returns in a growth industry.
“With the rest of the cannabis sector range bound anxiously awaiting the DEA’s decision on rescheduling, the ultimate elimination of 280E taxes is just one of the many company specific and industry catalysts that should benefit AFCG over the coming years… AFCG’s cycle tested management team and robust investment review process helped investors significantly outperform the largest cannabis REIT and our benchmark US cannabis ETF by over 26% and 826%, respectively, by generating a 37% total return since its first trading day. We believe the best is yet to come, as AFCG offers investors the rare opportunity to sit at the top of the capital stack in an emerging growth industry while earning equity like returns,” Randhawa explained.
These comments back up the analyst’s Buy rating on ACFG, and his $13 price target implies a one-year upside of 42%. Add in the dividend yield, and the total return on this stock can reach 56% in the coming year. (To watch Randhawa’s track record, click here)
AFC Gamma has not attracted a lot of analyst attention, but those who have recently reviewed the stock agree with Randhawa’s assessment. ACFG has a unanimous Strong Buy analyst consensus rating, based on 3 recent reviews. The stock’s $13.33 average price target suggests room for a 46% upside in the coming year. (See ACFG stock forecast)
Four Corners Property Trust (FCPT)
The next stock on our list, Four Corners Property Trust, is a more traditional REIT. This company is focused on restaurant properties, and has amassed a solid portfolio of properties across 47 states. The company has investments in 1153 properties, representing 156 restaurant brands, totaling 7.8 million square feet, and having an average lease term of 7.3 years. Four Corners’ business is acquiring, owning, and leasing these properties, with the goal of generating returns for its own investors.
The casual investor will likely recognize some of the brands in Four Corners’ portfolio. Of the company’s total investments, 314, or 35%, are in Olive Garden restaurant locations; the company also leases properties to 116 Longhorn Steakhouse locations, 82 Chili’s branches, and 23 Outback Steakhouses. In addition, 10% of the company’s portfolio is leased to auto service locations, and 8% to other retailers.
On the financial front, Four Corners’ 3Q24 results showcased total revenue of $66.79 million, reflecting a 3% year-over-year increase, though falling just $690,000 short of expectations. The bottom-line figure, the 27-cent EPS, was in-line with expectations. The company reported adjusted funds from operations (AFFO) of 43 cents per share, up a penny from the prior year.
The AFFO fully supports the dividend, which was increased in the most recent declaration, on November 11 for Q4, to a rate of 35.5 cents per common share. At this rate, the payment annualizes to $1.42 per share. The forward yield is sound, at 5%.
Four Corners stock has caught the attention of UBS analyst Michael Goldsmith, who sees plenty of reasons for investors to buy in.
“We rate FCPT Buy as we think its favorable cost of capital & diversification strategy away from restaurants support upside to AFFO growth at a favorable valuation… We model 2025 UBSe AFFO growth of 4%, which is ahead of consensus by ~100 bps, and positions FCPT above the peer avg… We see upside to FCPT’s valuation from its accelerating acquisition activity in 2H’24. Based on our correlation of avg. quarterly acq. volume and avg. quarterly AFFO multiple (R=0.47), we believe FCPT’s 2H’24 activity is deserving of an AFFO multiple of 18x (currently 16x),” Goldsmith opined.
That Buy rating comes along with a $33 price target that points toward a one-year gain of ~17%. Add in the dividend yield, and the total one-year return is in the neighborhood of 22%. (To watch Goldsmith’s track record, click here)
Overall, FCPT shares have a Moderate Buy consensus rating, based on 5 analyst reviews that break down to 3 Buys and 2 Holds. The current trading price of $28.22 and average target price of $30.50 together imply an upside of 8% in the next 12 months. (See FCPT stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
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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