When stock market turbulence picks up, smart investors often turn to dividend stocks. Companies that regularly pay a dividend to their shareholders tend to be recurringly profitable and, in most instances, time-tested.
What's more, income stocks have a history of crushing their non-paying peers. Based on a study released in 2013 from a division of JPMorgan Chase, companies that initiated and grew their payouts between 1972 and 2012 generated an annualized return of 9.5%. That was almost 500% better than the 1.6% annualized return companies that didn't offer a payout achieved between 1972 and 2012.
This outperformance for dividend stocks isn't lost on Wall Street. Based on the high-water price targets issued by select analysts, Wall Street expects the following three high-yield dividend stocks to return up to 140% for their shareholders.
The Mustang Mach-E is one of 30 EV models Ford is expected to have launched globally through mid-decade. Image source: Ford.
Ford Motor Company: Implied upside of 71% (4.88% yield)
The first high-octane income stock at least one Wall Street analyst believes has abundant upside is legacy auto stock Ford Motor Company (F). Even after lowering his firm's price target on Ford following its fourth-quarter earnings release, Bank of America's John Murphy foresees Ford shares rising to $21. This would represent 71% upside from where shares ended on March 30.
Ford has endured its share of missteps over the past year. Rapidly rising costs have narrowed its margins, while supply chain challenges (some by its own doing) have reduced the company's production capacity. CEO Jim Farley has been crystal clear with his shareholder base that addressing supply chain issues is Ford's primary focus.
But what really has Wall Street excited is what Ford is doing with regard to electrifying its fleet of vehicles. While internal combustion engine (ICE) vehicles remain Ford's core profit-driver, the company is investing $50 billion to develop electric vehicles (EVs), autonomous vehicles, and batteries through 2026. The goal for Ford is to be producing more than 2 million EVs annually by the end of 2026, as well as to introduce 30 new EV models globally through mid-decade. The popular Mustang Mach-E is one of the 30 EV models that's put Ford on the cutting edge of automotive innovation.
Although EVs represent a sustained double-digit growth opportunity for Ford, it's important for investors not to overlook the role ICE vehicles continue to play. In particular, the company's F-Series pickup has been America's top-selling truck for the past 46 years, and the best-selling vehicle, period, over the last 41 years. Since bigger vehicles tend to generate juicier margins, I can't overstate how important the success of Ford's F-Series pickup is to its bottom line.
Currently valued at less than 8 times Wall Street's consensus earnings for 2023 and 2024, Ford stock appears reasonably cheap. But considering it's yet to prove to investors that's it overcome its supply chain challenges, don't expect to see a $21 share price this year.
Innovative Industrial Properties: Implied upside of 140% (9.66% yield)
A second high-yield dividend stock one analyst on Wall Street expects to soar is cannabis-focused real estate investment trust (REIT) Innovative Industrial Properties (IIPR -0.67%). IIP, as the company is more commonly known, sports a nearly 10% yield and, according to BTIG analyst Thomas Catherwood, is capable of reaching $179 per share. If this price target proves accurate, Catherwood's call would imply 140% upside.
When the curtain closed on 2022, Innovative Industrial Properties owned 110 medical marijuana cultivating and processing facilities spanning approximately 8.7 million square feet in 19 legalized states. The remaining weighted-average lease length on these properties was a cool 15.3 years. In other words, the advantage of REITs is intended to be the predictability of their operating cash flow.
Perhaps the best aspect of IIP's operating model is that 100% of its leases are triple net (also known as "NNN"). An NNN lease requires the tenant to cover all property expenses, including utilities, maintenance, property tax, and insurance. While this style of lease results in lower rental payments, the advantage is that it removes unexpected costs from the equation. Once again, we're talking about highly predictable cash flow with IIP.
Another interesting quirk about Innovative Industrial Properties is that it's actually benefiting from Congress's inability to pass cannabis banking reform. As long as marijuana remains illegal, access to basic banking services is dicey, at best, for multi-state operators (MSOs). IIP has filled this void by purchasing facilities from MSOs for cash and immediately leasing them back to the seller. These sale-leaseback agreements net IIP long-term tenants while providing needed cash to MSOs.
The one hurdle to BTIG's lofty price target is going to be Innovative Industrial Properties' ability to deal with rental delinquencies. After collecting all of its rents on-time in previous years, only 92% of rents were on-time in February 2023. While IIP appears to be successfully working through its near-term struggles with its delinquent tenants, a 140% increase in 2023 probably isn't in the cards until its on-time rent-collection rate is back at, or very near, 100%.
Image source: Getty Images.
Walgreens Boots Alliance: Implied upside of 56% (5.54% yield)
The third high-yield dividend stock with significant upside potential, per one Wall Street analyst, is pharmacy chain Walgreens Boots Alliance (WBA -1.83%). According to analyst Charles Ryhee of Cowen, Walgreens can hit $54 per share, which would represent delectable upside of 56% for its shareholders.
Typically, healthcare stocks are relatively impervious to recessions and wild stock market gyrations. Because we have no say when we become ill, there's constant demand for healthcare services, pharmaceuticals, and devices.
But Walgreens' shareholders learned a tough lesson during the COVID-19 pandemic. Since Walgreens Boots Alliance brings in the lion's share of its revenue from its brick-and-mortar stores, initial lockdowns proved painful to its top and bottom line. Walgreens is still digging its way out after a couple of rough years.
The good news is Walgreens Boots Alliance is also multiple years into a turnaround plan that focuses on boosting its organic growth rate and attracting repeat customers. The most-prominent aspect of this plan involves the promotion of healthcare services. Walgreens has become a core investor in VillageMD. The two have opened 210 full-service health clinics co-located in Walgreens' stores. Having physician-staffed clinics is a differentiator that should bring patients back into its stores with regularity.
As I've previously pointed out, Walgreens hasn't been shy about putting money to work in various digitization initiatives. The pandemic was a wake-up call for management that the company needed to expand its online offerings and provide a more-convenient shopping experience. Even with a large brick-and-mortar presence, rising digital sales and a more-efficient supply chain have made these digitization investments well worth it.
With Walgreens Boots Alliance shares valued at an inexpensive 7 times Wall Street's consensus earnings for fiscal 2024, it looks to have a good shot at reaching $54 at some point in the future.
