Blue-chip dividend stocks are a must-have for the core portfolio. These stocks represent companies with stable cash flows and have a low beta. Of course, even the best dividend aristocrats don’t have a yield over 10%. To be realistic, a yield of 4% to 5% is robust for a blue chip.
However, for dividend investors, there is another set of stocks that have yields of well over 10%. These stocks don’t necessarily represent blue-chip companies. However, the yield is attractive, and healthy dividends are sustainable for the medium term.
This article focuses on the high-yield dividend stocks worth considering at current levels. Besides the yield factor, I believe the stocks discussed trade at a valuation gap. I would not be surprised if the total returns in these dividend stocks are in the range of 30% to 50% over the next 12 months.
Let’s discuss the reasons to be positive on these high-yield dividend stocks.
Dorian LPG (LPG)
Dorian LPG (NYSE:LPG) stock seems significantly undervalued at a forward price-earnings ratio of 5.8. Additionally, LPG offers an attractive dividend yield of 16.0%. I believe the stock could potentially deliver 30% to 50% total returns in the next 12 months.
As an overview, Dorian LPG is a liquefied petroleum gas shipping company. Currently, the company has a fleet of 22 very large gas carriers with an average age of eight years.
For Q1 2024, Dorian reported revenue and adjusted EBITDA of $111.6 million and $74.8 million, respectively. The first point to note is the EBITDA margin is robust on the back of healthy time charter rates. That will ensure dividends are sustained at current levels.
Another point to note is that for Q1 2024, the average TCE rate was $51,156. For the same period, the company’s vessel operating expense per day was $10,383. Even if TCE rates decline on a relative basis, the company’s cash flows will remain strong. Therefore, I remain positive on LPG stock. Current levels are attractive for fresh exposure.
Star Bulk Carriers (SBLK)
Star Bulk Carriers (NASDAQ:SBLK) is another attractively valued high-yield dividend stock. SBLK stock trades at a forward price-earnings ratio of about 8.6 and offers a dividend yield of 15%. After a correction in the last six months, the stock seems poised for a reversal rally.
It’s worth noting that Star Bulk is engaged in the ocean transport of dry bulk cargo globally. Even with the tightening of monetary policies, the International Monetary Fund (IMF) expects global GDP growth to hold steady in 2024. That factor and a potential stimulus package in China are likely to act as catalysts for growth in dry bulk cargo shipping — triggering recovery in time charter equivalent (TCE) rates.
However, it’s worth noting that even with relatively lower TCE rates on a year-on-year basis, Star Bulk reported an operating cash flow of $96.9 million for Q2 2023. With healthy cash flows, dividends are secure. Further, the company has been opportunistically selling older vessels, providing flexibility for potential deleveraging.
Nordic American Tankers (NAT)
Nordic American Tankers (NYSE:NAT) stock has trended higher by 65% in the last 12 months. The stock still trades at an attractive forward price-earnings ratio of 6.3. Further, NAT stock offers investors a dividend yield of 14.6%.
As an overview, Nordic American is an oil tanker company with a current fleet of 19 tankers. For the first half of 2023, Nordic American Tankers reported strong results. That has been backed by one of the strongest second quarters in the company’s history. For the quarter, the company reported an average time charter equivalent rate of $39,300 per day per ship.
Further, the company believes that there is “a scarcity of [its] type of ships, leading to better results and [a] higher dividend.” With a positive outlook, I believe NAT stock will likely remain in an uptrend. Importantly, year-on-year dividend growth will remain healthy.
I also like the company from a balance sheet perspective. As of June, the company reported $8.4 million in debt per ship. That provides high financial flexibility to leverage for potential fleet expansion if the market conditions remain positive.
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.
