We have seen a bullish market in recent months and investors, as always, want to maximize their returns. Raymond James analysts recommend dividend stocks and encourage investors to take advantage of both stock growth and reliable dividend income.
Larry Adam, CIO of Raymond James, discusses the market landscape and says: “The sun continues to shine on the US economy. Some of the traditional measures we track (for example, ISM production, the Fed’s aggressive tightening cycle, and leading indicators) suggest that the economy should be in recession by now. However, growth has proven to be more resilient than expected. Just as the GPS ‘recalculates’ when a road trip takes an unexpected detour, our growth forecasts have had to be ‘recalculated’ as the economy has proven more resilient than expected. The reasons: healthy job growth, government stimulus, travel spending, fiscal support (IRA, CHIPS, Infrastructure Act), and AI investments.”
Adam’s conclusion is clear: a recession is unlikely under current conditions. He summarizes: “The important point: slowing but still positive job growth, healthy levels of business investment and unused fiscal stimulus should keep the economy on a path to a soft landing.”
In this environment, Raymond James’ recommended dividend stocks represent a good opportunity, as they deliver significant dividend yields – some above 8% – in addition to share price appreciation. Using TipRanks data, we examined two of Raymond James’ top picks in detail.
CTO Real Estate Growth(CTO)
The first stock we’ll look at is CTO Realty Growth, a REIT or real estate investment trust. These companies are known for their often high dividend yields, a product of regulatory requirements that they return a certain portion of their profits directly to their investors; dividends are often the preferred method.
CTO owns and operates a portfolio of 19 high-quality retail properties in some of the fastest growing markets in the US. The company’s properties primarily include commercial parks and luxury shopping centers, with locations in North Carolina, Florida, Georgia, Texas and Arizona. In addition, CTO acts as a third-party manager of – and maintains a ‘meaningful’ ownership interest in – another REIT, Alpine Income Property Trust.
CTO has based its investment strategy on future income potential, where room for growth is considered more important than generating current income. The company’s geographical position reflects this; the sunbelt states of Florida, Texas and Arizona are among the highest growth regions in the US, with Georgia and North Carolina close behind.
This focus on quality in its real estate investments has enabled CTO to achieve long-term share growth. Since the beginning of the year, shares are up almost 20%, and over the past twelve months, shares are up more than 35%. While these stock gains lag the broader market, the stock makes up for this with its dividend.
The dividend here is impressive. CTO’s last statement, on August 20, was for a payment of 38 cents per common share. This was paid out on September 30. The annualized payment of $1.52 provides a forward yield of almost 8% – a solid return, especially as the pace of inflation slows.
The company’s dividend is supported by its financial performance. In the last reported quarter, the CTO had a 2Q24 FFO, or funds from operations, of 45 cents per share. This is the measure that directly supports the dividend payment. CTO’s revenue in the quarter was $28.85 million, up nearly 11% year over year and exceeding forecasts by $1.44 million.
Reporting on this stock for Raymond James, analyst RJ Milligan notes both its solid dividend and strong total return, saying of the stock: “CTO’s continued ability to find attractive investments at [+8%] returns and increased market cap/liquidity should eliminate the company’s meaningful multiple discount. CTO’s full-year total return is higher than that of the shopping center sector and the all-equity REIT index, yet the stock still trades at a significant FFO discount to its peer group. We continue to see greater upside in lower-end mall names and/or those trading at NAV discounts, as we do not expect material differentiation in fundamentals (SSNOI/earnings growth) until 2025.
“With a significant amount of opportunistic equity raised in the quarter ($126 million at an average price of $18.63) and a new attractively priced term loan ($100 million at an effective interest rate of 4.7%), the company can continue to play offensively and look for additional investment,” Milligan further said.
Milligan then gives an Outperform (Buy) rating to the stock, with a $22 price target suggesting a 13% upside over the next twelve months. With the dividend yield, the total return of this stock could be 21%. (To view Milligan’s track record, click here)
While there are only two recent analyst reviews on CTO stock, both are positive, making the consensus rating a Moderate Buy. The stock is trading at $19.46 and the average target price of $22 implies a one-year upside of 13%. (To see CTO stock forecast)
KKR Real Estate Finance Trust(KREF)
KKR Real Estate Finance Trust, the second stock on our list of dividend champions, is another REIT. KKR Real Estate is managed by the $600 billion global investment company KKR and benefits from the investment giant’s backing. The REIT maintains its own focus on providing senior lending in the commercial real estate sector, taking security in commercial real estate assets – in other words, collateralized commercial mortgages in top market regions. KREF’s asset targets also include mezzanine loans, preferred shares and debt-oriented instruments with similar characteristics. Like CTO above, KREF’s main goal is to generate investor returns and high dividends.
KREF’s portfolio contains approximately $6.6 billion in loans and consists entirely of senior loans, 99% of which have variable interest rates. Multi-family properties make up a large portion of the portfolio holdings, at 46% of the total, with office space accounting for 20% and industrial space 14%. Geographically, KREF’s portfolio is primarily located in California (19%), Texas (17%) and Massachusetts (12%). Florida and Virginia each represent 8% of the portfolio, and the firm also has interests in Washington, DC, North Carolina, New York, Washington State and Philadelphia.
KREF just reported its third-quarter earnings, with revenue of $47.2 million, beating forecasts by more than $9.28 million – although down 5.8% year-over-year. Operating income was non-GAAP earnings per share of $0.37, beating forecasts by $0.03.
As for the dividend, KREF announced a 25 cent common stock payment on September 13 and paid it out on October 15. The dividend comes out to $1 annually and yields a yield of ~8.6%.
Raymond James analyst Stephen Laws, one of the firm’s five-star equity professionals, believes KREF has a clear path forward, writing about the company: “We expect KREF to benefit from lower interest rates by increasing new investment opportunities and likely better portfolio performance. because borrowers are more likely to protect assets, potentially reducing the severity of losses in settlements. Our assessment is based on the improving performance of the portfolio and our prospects for a dividend increase next year… We expect KREF to maintain the quarterly dividend of $0.25 per share in the second half of 24 and increase the dividend to $0.30 per share share in the first quarter of 2025.”
Along with these comments, Laws gives KREF an Outperform (Buy) rating, with a $14 price target indicating room for 20% upside in the coming months. Add in the dividend yield and this stock could return almost 29% over the next twelve months. (To view Laws’ track record, click here)
All six analyst reviews recorded here are positive, for a unanimous Strong Buy consensus rating. The stock is currently priced at $11.68 and the average price target of $13.08 implies a gain of 12% this time next year. (To see KREFstock 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 for informational purposes only. It is very important to do your own analysis before making an investment.
