What’s one of the best ways to start the new year?
From an investment perspective, consider exposure to stocks with dividend yield over 10%. Indeed, a robust dividend yield is like a quarterly pay-check for investors. And, a strong dividend portfolio is as important as considering exposure to some high growth stocks for robust returns.
An important screener that I have used is to look for undervalued stocks that have a dividend yield of over 10%. A potential reversal in these stocks can easily imply total returns of 30% to 40% over the next 12 months.
Furthermore, the idea is to search for dividend stocks with signs of healthy cash flow visibility. This will ensure that dividends sustain and potentially grow in the next few years.
So, let’s discuss the reasons to remain positive on these dividend stocks.
Flex LNG (FLNG)
Flex LNG (NYSE:FLNG) stock is among the attractive stocks with a dividend yield of over 10%. Currently, the stock offers a yield of 10.32% and trades at an attractive forward P/E ratio of 11.6. With FLNG stock remaining sideways to lower in the last 12 months, a breakout on the upside seems likely.
As an overview, Flex LNG is engaged in the seaborne transportation of liquified natural gas. Currently, the company has a fleet of LNG carriers with an average age of four years. These LNG carriers have a combined contract backlog of 51 years. Further, if the option for extension is exercised, the backlog will swell to 77 years. Therefore, Flex LNG has clear revenue and cash flow visibility.
Notably, Flex has $429 million in cash and no debt maturities until 2028. With a strong asset base, Flex LNG is positioned for potential fleet expansion. This would be a catalyst for revenue upside and dividend growth.
Frontline (FRO)
Frontline (NYSE:FRO) stock has surged by 66% in the last year. However, FRO remains undervalued at a forward P/E ratio of 7.2. Further, the stock offers an attractive dividend yield of 14.3%. So, expect the upside to sustain for the stock.
Specifically, Frontline globally transports crude oil and oil products. Importantly, the company has entered into an agreement with Euronav (NYSE:EURN) to purchase 24 VLCCs with an average age of 5.3 years. The purchase consideration is $2.35 billion and is fully funded.
Additionally, Frontline expects all vessels to be delivered by Q1 of 2024. The new fleet will provide robust cash flow visibility for 2024 and beyond. Also, potential rate cuts in 2024 can boost GDP growth and the demand for oil. Further, factors like geopolitical tensions and a low VLCC order book will support day rates at higher levels. Therefore, the cash flow outlook for Frontline is robust and will support dividend growth and debt servicing.
Avance Gas (AVACF)
Avance Gas (OTCMKTS:AVACF) stock had a stellar upside of 111% last year. However, deeply oversold levels caused the rally. and a P/E ratio of 8.3 looks attractive. Also, AVACF offers an attractive dividend yield of 13.5%.
Like Frontline, Avance Gas transports liquified petroleum gas. The company has a fleet of 20 vessels with an average age of 4.5 years.
For Q3 of 2023, Avance Gas reported a time charter equivalent rate of $55,300 per day. With cash break-even at $22,000 per day, robust cash flows are visible. Last quarter, Avance reported cash flow from operations of $42 million.
Impressively, Avance Gas reported loan-to-value of 49% and a cash buffer of $146 million. This shows ample flexibility for financing the new vessels. Further, cash flow upside is visible as new vessels are operational.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
