Top 2 High-Yield Dividend Stocks to Consider Amid Market Volatility

The markets have opened September with a jolt reminiscent of the volatility seen in early August, clearly indicating that investor confidence is faltering in this pivotal election year. With unsettling news emerging from job reports, concerns about a potential recession are mounting. Notably, the July job figures underwent a downward revision of over 800,000, while August’s numbers fell short of expectations, suggesting stagnation in employment growth.

In the commodity sector, recent weeks have seen oil prices plummet, erasing earlier gains. This decline could be a harbinger of economic difficulties, as lower oil prices typically reflect reduced demand and a sluggish industrial landscape—key indicators suggesting a recession may be on the horizon.

Priya Misra, a portfolio manager at JPMorgan Asset Management, observes that current market conditions fail to adequately account for the mounting possibility of recession. She notes, “While traders are preoccupied with the possibility of a 25 or 50 basis point cut from the Fed in September, the reality is that all markets will react if a recession materializes. It will take time for any rate cuts to influence the economy.”

In light of these economic uncertainties, savvy investors are increasingly focusing on dividend stocks. These equities offer a reliable income stream, providing a cushion regardless of market fluctuations.

In our search for high-yield dividend stocks, we turned to the TipRanks database and uncovered some compelling options boasting ‘Strong Buy’ ratings from analysts, each offering yields of at least 10%. Here’s a closer look at two noteworthy choices.

MFA Financial (MFA) emerges as an intriguing player in the specialty finance sector, particularly as a real estate investment trust (REIT). MFA Financial specializes in the acquisition of residential mortgage loans and mortgage-backed securities. As of June 30, the company reported a robust residential whole loan balance of $9.2 billion alongside a securities portfolio valued at $863.3 million.

During the second quarter, MFA completed $688.2 million in loan acquisitions and added $175.5 million in agency mortgage-backed securities. Impressively, the company achieved $53.49 million in net interest income for the quarter, marking a 20% year-over-year increase, and exceeded forecasts by $330,000. Notably, MFA’s earnings fully supported its 35-cent common stock dividend, which annualizes to $1.40 per share and yields 11.4%. Since its public debut in 1998, the company has distributed an impressive $4.7 billion in cumulative dividends.

Wedbush analyst Jay McCanless, who ranks in the top 1% of his field, believes MFA Financial is on the verge of significant gains post-restructuring efforts. He states, “MFA has managed to successfully rebuild itself on multiple fronts, and this positive transformation is evident in its recent financial results. The company has consistently covered its dividend on an earnings after depreciation (EAD) basis.” With a price target of $14, McCanless’s Outperform rating suggests over 14% upside potential, translating to a robust total return of more than 25% when factoring in the dividend.

The second stock on our radar is Golub Capital BDC (GBDC), a business development corporation (BDC) that provides crucial financial services to small- and mid-sized enterprises, a sector fundamental to the U.S. economy. Earlier this year, Golub completed a merger with GBDC 3, significantly expanding its portfolio, which now encompasses $8.8 billion in total assets across 367 companies.

Golub’s investment strategy focuses heavily on floating-rate loans, with 99% of its portfolio comprised of senior loans, which are typically less risky. In the second quarter, Golub reported total investment income of $171.27 million, demonstrating strong financial performance. Its upcoming dividend, set at 39 cents per common share, translates to an annualized yield of approximately 10.6%.

KBW analyst Paul Johnson recognizes Golub’s exceptional quality within the BDC sector and anticipates that its portfolio will outperform that of its peers due to its focus on senior debt. Johnson assigns an Outperform rating, setting a price target of $16.50, implying 12% upside potential. When combining this with the dividend yield, total returns could exceed 22.5%.

For those looking for compelling investment opportunities, these stocks, with their attractive valuations and solid dividends, are worth considering. With market volatility likely to continue, dividend stocks like MFA Financial and Golub Capital offer a prudent pathway to navigate uncertain economic waters. As always, it’s essential to conduct thorough research before making investment decisions.