Looking for dividend-paying defense stocks to grab now? Deutsche Bank suggests 2 names to consider

Last week, the Fed’s Open Market Committee raised its benchmark interest rate by 0.75%, the biggest such hike in nearly 30 years. This decision marks a shift to an aggressive stance against inflation and an attempt by the Fed to avoid a possible recession.

In fact, preliminary data released by the Atlanta Fed earlier in the week showed that the US is in a technical recession. While official numbers won’t be released until after the end of the second quarter, early numbers show that 2Q22 will end with GDP growth of 0.0%. After the 1.5% contraction in the first quarter, this represents two consecutive quarters of negative or no growth – the definition of a recession.

From an investor’s perspective, such an environment means it’s time to bolster portfolio defenses. Defensive equity games are going to get a lot more attention going forward – as Deutsche Bank noted in a recent Current Conditions report.

Against this backstop, investment banking analysts picked potential winners among dividend-paying stocks, classic defensive plays for downturns of all types. We researched the details of two of these picks, using the TipRanks database. Now let’s dive in and look at the numbers and DB’s commentary together.

Digital Real Estate Trust (DLR)

First, Digital Realty Trust belongs to that long-time champion category of the dividend industry, the real estate investment trust (REIT). These companies are required to return a high percentage of profits directly to shareholders and frequently use dividends as a vehicle. Therefore, REITs can generally be counted on to deliver reliable high-yield dividends.

Some REITs are generalists, investing in any type of property, while others take a narrower view. Digital Realty is one of the latter and focuses on data centers. The company owns data center properties and provides colocation and interconnection solutions between its properties and its tenants’ businesses. With a market capitalization of $36.2 billion and an enterprise value of $56 billion, the company is the 7th largest REIT to trade on Wall Street.

Some recent announcements from the company will help demonstrate the size of its operations. Last month, DLR announced that it had awarded a contract for 158 megawatts of new solar power installations for its operations in California and Georgia. And this month, the company announced the expansion of its international footprint with a commitment to open a new data center project in Israel. This decision will strengthen DLR’s operations in the Eastern Mediterranean region.

Financially, Digital Realty reported revenue of $1.1 billion in 1Q22, in line with the prior quarter and up a modest 3% from the prior year quarter. These revenues supported net income of $76.9 million, which led to common shareholder EPS of 22 cents per diluted share. This figure is down sharply from the diluted EPS of $1.32 recorded in 1Q21. That said, funds from operations (FFO) per share, a key industry metric, rose from $1.50 in 1Q21 to $1.60 in the recent report, a gain of 6.7%.

The FFO backed the company’s $1.22 common stock dividend. This payment is canceled at $4.88 for each common share. At this rate, it is yielding 3.8%, nearly double the average dividend found in broader markets. Even better for investors, the dividend has been increased three times in the past three years, and the company has a 17-year history of maintaining payment reliability with incremental increases.

In his review of Digital Realty for Deutsche Bank, analyst Matthew Niknam sees this company as having a solid foundation to overcome economic difficulties. He writes: “Customer demand has been robust from both hyperscale and enterprise customers, driving strong rental volumes in recent periods. While we don’t believe record volumes can be extrapolated into the future (particularly as macro conditions deteriorate), we believe recent strength and a very healthy backlog (~$400M+ ) help de-risk the growth outlook through 2023.”

Niknam does not stop there. He is also improving his position in the stock from Hold (Neutral) to Buy, and sets a price target, $144, which suggests 13% one-year upside potential for the stock. (To view Niknam’s track record, Click here)

Overall, the moderate buy analyst consensus rating on this stock is derived from 10 recent valuations, including 7 buy versus 3 hold. The shares are currently selling at $127.13 and have an average price target of $159.80, which gives an average upside of around 26% for the year ahead. (See DLR stock forecast on TipRanks)

NetApp (NTAP)

The next dividend-paying stock we’ll be looking at is NetApp, a San Jose-based company working in cloud-based data services and data management. NetApp works with major enterprise customers, including names like AstraZeneca, DreamWorks and even Dow Jones, on a range of data applications, all aimed at getting the right data to the right place at the right time, where the customer can make the most of it. efficient and profitable use of it.

Data has become big business, and even after posting stock losses in recent months (NTAP stock has fallen 31% year-to-date, underperforming the S&P 500), the company is showing still a market cap above $14.5 billion.

Financial results for the last quarter, the fourth quarter of fiscal 2022, were strong. NetApp reported net revenue of $1.68 billion, compared to $1.56 billion in 4Q21. The company’s hybrid cloud segment led the way, with $1.56 billion of total revenue. NetApp ended the quarter with $4.13 billion in cash and other liquid assets.

This strong cash is returned to the shareholders of the company. NetApp has an active program of stock buybacks and dividend payments, totaling $361 million in 4Q22 and $1.05 billion for the full year. The common stock dividend is set at 50 cents per share, or $2 annualized, and yields 3%.

All of this led 5-star Deutsche Bank analyst Sidney Ho to want to move these stocks from Hold (i.e. neutral) to Buy. Explaining his position, Ho writes, “We believe NTAP’s year-to-date underperformance of NTAP stock, down -30% (vs -18% for hardware peers), creates an opportunity purchase… We are also encouraged that the company will shift its use of short-term cash from mergers and acquisitions to share buybacks, which should be positive for EPS growth. »

Rating the risk-reward ratio as “compelling,” as well as the upgrade and bullish outlook, Ho’s $84 price target implies 32% year-over-year upside potential. (To see Ho’s track record, Click here)

Overall, the analyst consensus rating on NTAP is a Moderate Buy, based on 13 reviews. These include 6 purchases against 7 catches. The current stock price is $63.73 and its average price target of $88.38 suggests an upside of around 39% over the coming year. (See NTAP stock forecast on TipRanks)

To find great ideas for dividend-paying stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock information.

Disclaimer: The opinions expressed in this article are solely those of the analysts featured. 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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