Top Dividend Plays With Strong Analyst Ratings

Key Points

• Most commonly, dividend stocks are companies with stable operations and minimal growth prospects.
• Occasionally, firms pay high dividend yields while also aiming for growth as well—this is a riskier proposition for investors but can potentially provide either passive income, capital appreciation, or both.
• A closed-end fund and two small-cap energy firms check those boxes while also getting approval from analysts.

When considering dividend stocks, most investors search for established and stable companies likely to trade away some of their growth opportunity in favor of a steady schedule of payouts to investors. This has long been a tried-and-true approach for investors looking to buy dividend-paying companies and hold them for the long term, and its appeal as a risk-mitigating strategy is clear in times of market turmoil.

However, volatility in the market can also mean price swings that allow more aggressive traders to capitalize on movement. Another approach to dividend stock investing might take on a higher degree of risk by seeking attractive companies for their potential to provide passive income and for their growth potential.

This may mean firms that are somewhat less stable than traditional dividend names and might even mean the possibility that those companies will have to trim or defer their dividend payments at some point in the future. But for investors seeking a balance of growth and passive income, a middle ground exists. The companies below may be a place to start a search.

Major Dividend Yield and Some Growth Potential From a CEF

Eagle Point Credit Co. Inc. NYSE: ECC is an example of a closed-end fund (CEF), an investment company with shares trading on a market and at a price determined by market demand, irrespective of net asset value (NAV). Eagle Point's primary goal is generating current income, generally through investments in collateralized loan obligations (CLOs) equity.

Eagle Point has successfully taken advantage of shifting market conditions in recent months to buy up new investments at a discount, funneling almost $200 million into these investments in the first quarter of the year alone. By lowering debt costs in the quarter, Eagle Point also reported an earnings beat of 2 cents per share over analyst predictions.

Like many CEFs, one of Eagle Point's primary appeals to investors is its distributions. The company has a dividend yield of a whopping 21.48%, although the payout ratio of -420% again suggests that it may not be as stable as other dividend payers. Still, analysts also expect nearly 11% in upside potential for ECC shares, opening up the possibility of capital appreciation.

Over 80% in Upside Potential for a Dividend-Paying Regional Energy Company

An upstream oil and gas company operating in Oklahoma, Kansas, and Texas, Mach Natural Resources LP NYSE: MNR enjoys a unanimous Buy rating from three analysts, who collectively estimate more than 80% in upside potential for shares. MNR stock has fallen by almost a third in the last year and is trading just above one-year lows.

Mach has successfully managed its leverage, and while loss on debt extinguishment dampened its net income performance on a year-over-year (YoY) basis, the company has been able to maintain its net cash generation essentially intact during that same period.

Mach is also transitioning its drilling program to natural gas, a strategic shift that may pay off as demand for cleaner-burning gas increases.

Mach's dividend yield is 23.74%, although its payout ratio is also quite high at 197.50%. Investors may see the combination of upside potential and current dividend status as appealing for this small-cap regional energy firm.

Balance of Passive Income and Growth Potential Amid Expansion Efforts

Like Mach, TXO Partners LP NYSE: TXO is another small-cap energy firm with a Buy rating from analysts at Stifel Nicolaus and about 34% in upside potential. TXO shares are trading around a one-year low after falling by 28% during the last 12 months.

TXO is undergoing significant expansion, recently buying property in the Elm Coulee field in Montana and North Dakota for roughly $350 million through a public offering of $175 million. While this puts its dividend schedule in jeopardy, the company has a dividend yield of 16.31% and a payout ratio of 580.95%, which will also make it the leading producer in Elm Coulee.

That field has an estimated resource base of around four billion barrels of oil. Investors willing to take a risk on TXO during this critical expansion phase could be rewarded with capital appreciation as well as passive income.