2 High Yield Dividend Stocks That Could Grow 50% In The Near Term

Now could be an optimal time to consider buying these dividend stocks.

Investors often gloss over dividend stocks, assuming that they offer nothing more than a recurring payout. But there are a couple of stocks that analysts are bullish about and that they believe could rise by at least 50% given their modest valuations: CVS Health (CVS) and U.S. Bancorp (USB). Not only is there a lot of potential upside with these stocks, but they also pay a dividend yield of more than 3%.

1. CVS Health

CVS Health is a top healthcare business that pays an attractive dividend yield of 3.3%. On a $25,000 investment, that would generate about $825 in dividend income over the course of a full year. If you were to invest in an average S&P 500 stock that pays only 1.7%, then your dividend income would only be around $425 at the same level of investment.

But CVS is more than just a good dividend stock, and there's reason for growth investors to also add it to their portfolios. Through multiple acquisitions over the past few years, including Signify Health and Aetna, along with recently announced plans to acquire primary care company Oak Street Health — this could be a huge healthcare business in the years ahead.

The stock is trading near its 52-week low, and that appears unjustified given the company's solid business and strong growth prospects. While its profit margins are normally in the low-single digits, when a company brings in more than $300 billion in annual revenue like CVS does, that still leaves plenty for the business to pay a dividend and invest back into its operations and long-term growth. Last year, the company generated $13.5 billion in free cash flow, which was easily enough to cover its dividend payments totaling $2.9 billion over the same time frame.

At a consensus analyst price target of $116.50, CVS' stock has an upside of around 60% from where it trades right now. And analyst price targets typically look at a period of 12 to 18 months, suggesting that's just where the stock could go in the short term. If you're hanging on to CVS stock for multiple years, there could be even greater gains to be made from owning this investment.

2. U.S. Bancorp

U.S. bank stocks have been struggling amid worsening economic conditions and multiple banks running into problems, including First Republic Bank. U.S. Bancorp, however, is a much safer investment to hold as it is one of the largest banks in the country, with $587 billion in assets and over 2,200 banking offices. It's also a Warren Buffett stock, with Berkshire Hathaway owning a modest stake of less than 1% in the business.

The bank reported its latest earnings numbers in April, and for the first three months of the year, U.S. Bancorp's net revenue of $7.2 billion rose 28% year over year as it benefited from its recent acquisition of MUFG Union Bank. Similarly, U.S. Bancorp's earnings got a boost as well, with net income of $1.7 billion up 9% versus the prior-year period.

With $1.04 in diluted earnings per share, the bank is generating more than enough to cover its quarterly dividend payment of just $0.48. That makes the bank stock's 5.6% yield look incredibly safe right now, giving it plenty of a buffer should economic conditions deteriorate this year — which isn't that unlikely as the risk of a recession looks to be high. 

And with shares of U.S. Bancorp down near their 52-week low, this could be a good stock to buy right now for both its dividend and the upside it offers. The consensus analyst price target is just over $50 for the stock, which means U.S. Bancorp shares may rise by as much as 50% from where they are today.

Originally published on Fool.com