Market indicators have recently given conflicting signals, creating uncertainty among investors. The year-to-date rally is certainly better than last year’s bear market, and while volatility is a concern, it’s lower than last year, there are still many risk factors remaining in both the broader economy and the stock market. increase.
Christian Mueller-Grismann, head of asset allocation research at Goldman Sachs, takes a broader view of the market and encourages investors to be more defensive.
Grisman explained that lower overall volatility this year does not necessarily translate into lower risk, saying, “Equity volatility has been unusually low year-to-date. The S&P 500 has been impacted by lower bond yields in recent times, but rising macro uncertainty, signs of market stress and slowing growth in Q2 have weakened macro momentum. Given the mix, we still believe a transition to a low-volume regime is unlikely…”
“In terms of asset allocation, we remain relatively defensive. Our baseline is a relatively benign macro backdrop, but risks are skewed to the downside and risk premiums are relatively low. Equity protection strategies include: We think it deserves more,” Glissman added.
And this brings us to Dividend stock, a long-time favorite defensive play when the market goes bad. Neil Mehta, his five-star analyst at Goldman Sachs, said an impressive rate of up to 10% could outperform current inflation and provide investors with a solid source of passive income. Chose his two dividend payers with yields. Let’s take a closer look.
Coterra Energy (CTRA)
The first high-yield stock Goldman Sachs is betting on is Texas-based energy company Coterra. From its location in the Lone Star State, Cotera is engaged in hydrocarbon exploration and production in the Permian Basin, the Anadarko Basin in Oklahoma and the Marcellus shale gas reserves in Pennsylvania. His Coterra holdings in these rich production basins total approximately 600,000 net acres, from which the company extracts crude oil, natural gas and natural gas liquids.
Its production is based on solid proven reserves totaling over 2.89 billion barrels of oil equivalent. Coterra has realized significant returns from its assets, with earnings of his $9.21 billion last year, up 151% year-on-year from $3.66 billion in 2021. A solid foundation for profits and a generous capital return policy.
Ultimately, Coterra reported EPS of $1.16 in the fourth quarter of 2022. These revenues exceeded expectations by 5 cents and increased 39% year-over-year. The company’s profitable performance was based on significant increases in realized oil and gas prices from 2021. Oil prices rose 8.8% and gas rose 9.9%. These increases offset Cotera’s decline in his 2022 production. 632,000 barrels of oil equivalent per day decreased by 7.8% from the previous year.
In terms of capital returns, Coterra last announced its dividend in February, setting a base payout of 20 cents and a variable payout of 37 cents per share. A total dividend of 57 cents per common share he was paid on March 30. At $2.28 per annum, the base plus floating dividend yields a staggering 9% return. Coterra supports his dividend policy with his $892 million in free cash flow in Q4 2022. The company will report first-quarter results on May 4.
Analyst Neil Mehta, who covers Goldman Sachs shares, wrote that he remained bullish on CTRA. Here are some of the reasons why: In our view, over the next three years, he has management’s plan to increase oil production by around 5% and a strong balance sheet that allows him to allocate FCF to capital returns. At valuation, we see CTRA yielding his FCF yield of 11% over the next three years.
Mehta quantifies his stance, giving CTRA stock a buy rating with a price target of $29, suggesting a 14% gain over the one-year period. Based on the current dividend yield and expected price appreciation, this stock’s potential Total Return His Profile is up to 23%. (To see meta achievements, click here)
That’s the view of Goldman Sachs. Now let’s turn our attention to the rest of the street. His 5 byes and 12 holds in CTRA coalesce into his moderated buy rating. An average price target of $30.19 means up to 19% over one year from the current target price of $30.19. (look CTRA stock price forecast)
Pioneer Natural Resources (PXDMore)
Next up is Pioneer Natural Resources, a Texas-based hydrocarbon exploration and production operator. The company is focused on pure operations in the Permian Basin and specifically targets the Midlands. This puts Texas back on the world’s energy production map in her second decade of the century due to its abundant oil reserves. The Permian Basin boasts some of the richest recoverable oil and gas reserves in North America, making it a very important area for hydrocarbon exploration and production.
Pioneer has taken an interesting route in its mining operations by avoiding operations on public land and concentrating solely on drilling and working on private land. This has been a long-standing policy for the company, but it has given Pioneer unique advantages given the Biden administration’s known reluctance to approve hydrocarbon operations on public lands.
Pioneer is expected to release its first quarter results later this week, and a review of its latest quarterly announcement, Q4 22, should give you a clear picture of where the company stands today.
Pioneer’s revenue and EPS have slid downward from the peak levels reached in 2Q22, but the company reports a final beat in 4Q22. The company’s non-GAAP EPS of $5.91 was 15 cents higher than expected and increased 29% from the prior year period. Top-line revenue was $5.1 billion, $490 million below forecast, but still growing 18% year-over-year.
These numbers support Pioneer’s quarterly free cash flow of $1.7 billion, a strong metric that directly supports the company’s dividend payout. Pioneer has a history of paying dividends based on a combination of base plus variables that can change from quarter to quarter as oil prices fluctuate. In the final statement, the company set a total payout for him of $5.58. The payment was made to him on March 17th. An annual rate of $22.32 gives a strong yield of 10%.
In this stock memo, Goldman Sachs’ Neil Mehta describes a clear case for buying PXD based on its proven cash-generating ability. he wrote: The stock will underperform its peers in 2022, in part because productivity trends aren’t great.
In line with these comments, Mehta gives PXD shares a buy rating, along with a price target of $240, implying a 7% upside potential. Based on the current dividend yield and expected price appreciation, this stock has a potential total return profile of up to 17%.
What do you think of the rest of the street? Opinions from other analysts are more spread out when looking at the consensus breakdown. 10 buys, 8 holds, and 2 sells would be a moderate buy consensus. Additionally, the average price target of $253.68 indicates up to 13% upside potential from current levels. (look PXD stock price forecast)
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Disclaimer: The opinions expressed in this article are those of the featured analyst only. This content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.