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Dividend Stocks are still favored among many analysts, but only 7 stocks with a yield of 2% or more were upgraded last week. Strong balance sheets and valuation continue to be the drivers behind investment firm upgrades. We have listed the reason for the upgrade and the new price target when it was made available by the analyst.

AvalonBay (NYSE:AVB)

Avalon Bay was upgraded by RBC Capital Markets on March 9th from Outperform to Top Pick with a price target of $154 per share. RBC cited low leverage, a strong balance sheet, ample liquidity and valuation as the reasons for the upgrade. Avalon Bay is a REIT with a dividend yield of 2.6%, which is far below its 5 year yield average of 4.8%. AVB is set to increase its dividend in 2012 by around 8% if their Q3 and Q4 dividend distribution match the most recent dividend.

XL Capital (NYSE:XL)

XL Capital was upgraded by JMP Securities on March 9th from Market Perform to Market Outperform with a price target of $25 per share. JMP Securities said the upgrade was based on reset expectations, improved loss rations and relative valuation. XL Capital has a dividend yield of 2.1%. The company started paying dividends in 2010 and it did increase its dividend in 2011. It has a payout ratio of 66%.

AXIS Capital (NYSE:AXS)

AXIS Capital was upgraded by Deutsche Bank on March 8th from a Hold to a Buy, with a price target of $38 per share. Deutsche Bank said the upgrade was based on stock valuation. AXS has a dividend yield of 2.9%, which is very close to its 5 year yield average of 2.8%. The company has increased its dividend for 8 consecutive years, and has a 5 year dividend growth rate of 8.6%. The current payout ratio is 89% compared to the 5 year average payout ratio of 35%.

Covanta (NYSE:CVA)

Covanta was upgraded by Barclays Capital on March 6th from Equal Weight to Overweight with a price target of $20 per share. Barclays said the upgrade was based on stock valuation, revenue stream on waste and power contracts and the company's reasonable chance at growth projects in the UK. CVA has a dividend yield of 3.6% after doubling its dividend this quarter. The company started paying dividends in 2010 and has a payout ratio of 54%.

Lockheed Martin (NYSE:LMT)

Lockheed Martin was upgraded by RBC Capital Markets from Underperform to Outperform on March 6th, with a price target of $98 per share. RBC cited the company's strong dividend as the reason for the upgrade. LMT does in fact have very solid dividend numbers with a 3.9% dividend yield, a 5 year dividend growth rate of 22% and a low payout ratio of 45%. The company has increased its dividend for 9 consecutive years.

Allstate (NYSE:ALL)

Allstate was upgraded by Argus from Hold to Buy on March 6th, with a price target of $36 per share. Argus cited relative valuation, a strong balance sheet, and more consistent results as the reasons for the upgrade. Allstate has a dividend yield of 2.7% and a payout ratio of 56%. 2012 will be the 2nd year in a row that the company has increased its dividend after cutting it back in 2010.

Other Upgrades

Pengrowth Energy was upgraded by BMO Capital Markets from Market Perform to Outperform on March 7th but no price target was provided. The reason for the upgrade was not publicly available. Pengrowth has a dividend yield of 8.4% and pays dividend monthly, but has not increased its dividend, since the company started paying dividends in 2010.

Source: 7 Dividend Stocks Expected To Outperform