3 high-yield values to buy ahead of rate cuts

Key Points

• Enterprise Products Partners tops the list of buy-rated high-yield values at the end of 2023.
• Verizon is in rebound mode and won't be this cheap or high-yielding for long. 
• Ethan Allen Interiors is a comfortable stock to sit in and wait for the Fed to cut rates. 

With interest rates slated to come down by the end of 2024, it's time to look at high-yielding stocks. Stocks with yields above 4% should outperform bonds over the coming years, as they provide similar yield returns with the possibility of capital growth. The odds for capital growth should go up for many stocks due to depressed pricing caused by the high-rate environment. The stocks on this list result from a screen using MarketBeat’s proprietary data and tools. 

The criteria are simple: Buy-rated stocks with a yield above 4% and trading below the S&P 500 average price multiple. These are the names that stand out. 

Enterprise Products Partners: Dividends for life

Enterprise Products Partners NYSE: EPD is a leading provider of midstream services for the natural gas industry. This limited partnership has a market cap near $57 billion and pays a solid 7.6% yield while trading near 10.5x its earnings. The payout is relatively high compared to earnings, about 80%, but that aligns with the industry and federal regulations. The company has increased its distribution for 25 years and should sustain annual growth for at least a few more years. 

Although the forecast for demand growth has recently come down, demand for natural gas should grow by 1.6% annually for the next three years. Enterprise Products Partners should grow by triple that rate and widen its margin as it expands its footprint and deepens the penetration of existing markets. 

CAPEX plans for 2024 include $3.3 billion in spending, with $3 billion aimed at growth-enhancing projects and acquisitions. 

Marketbeat.com tracks 11 analysts with current ratings on EPD, and they have the stock pegged at "moderate buy." Activity is mixed in 2023, with some raising and some lowering their targets, but the consensus figure has held steady. The stock is trading below the analyst's lowest target, suggesting a deep value, while the consensus implies an 18% upside. 

Dow dog Verizon: Ready for a comeback

Verizon Communications NYSE: VZ is one of this year's worst-performing Dow stocks, with a decline of -5 % YTD, but it is already in rebound mode. The stock hit bottom earlier this year and has since clawed back about $7, or roughly a 25% gain from the lowest level. Regardless, the stock trades at the deep value of 8x earnings while paying more than 7% yield. 

Investors should not expect robust dividend increases, but the cash flow and distribution history suggest more are coming. This stock is well on the way to being named a Dividend Aristocrat and will hit the mark before the end of the decade. 

The outlook for 2024 is mixed, with expected revenue growth and earnings forecasted to contract. The takeaway for income investors is that cash flow and FCF flow are improving in the face of margin pressure and should remain strong in 2024. The earnings forecast is likely wrong because the company has shown margin strength in 2023, and revenue should grow. Analysts began upgrading the stock and raising their price targets in late October. They view this communications stock as a deep value trading below the low end of the expected range. 

Ethan Allen's comfortable dividend

Ethan Allen Interiors Inc. NYSE: ETD is the highest-quality stock in a cash-flow-producing sector. The company experienced the same post-bubble normalization as other furniture stocks and now looks ahead to a housing market rebound. The prospect of FOMC rate cuts has this market up 15% for the year and 20% off the lows and heading higher. 

Analysts expect the company to return to top- and bottom-line growth in fiscal 2024 and see the stock price advancing about 10%. Because the company is adding new stores, there is a significant chance for outperformance. Shares of ETD are advancing now and may move to a multi-year high early in 2024. Shares of ETD trade at 10x earnings and pay 4.45% in yield at $32.25.