Dividend Stocks Yielding 10% or More

While gathering information for this week’s commentary, I noticed that there are currently 91 exchange-listed stocks trading with yields of 10% or higher. Out of sheer curiosity, I decided to take a closer look.

Yields range from 10.0%—Great Ajax Corp. (AJX), PermRock Royalty Trust (PRT) and Silver Spike Investment Corp. (SSIC)—to 28.5% for CVR Partners LP (UAN). As of Tuesday’s close, there were a total of four stocks with yields greater than 20%. The median yield of the passing companies was 12.5%.

Two out of five double-digit-yielding stocks are classified as real estate investment trusts (REITS). LSEG Data & Analytics lists most of these trusts in the specialized REITs industry group. There were also 17 energy-related businesses. Many of these were either master limited partnerships (MLPs) or publicly traded trusts.

A variety of industries and sectors were represented by the other stocks, including banks, business development companies (BDCs), retailers and utilities. (I excluded the relatively small number of closed-end funds with yields of 10% or higher that appeared in the screen’s results. I also excluded companies lacking 12-month dividend data.)

Given this diversity, not all typical financial measures are applicable. There are some metrics used to calculate the dividend grades for AAII Dividend Investing that we can use to do a cursory analysis on these very high-yielding stocks.

One is dividend growth. This metric simply measures whether the dividend paid over the past 12 months is higher or lower than the dividend paid over the previous 12 months. The median value is 0.0%. Thirty-two of these companies have raised their dividends while 36 have lowered their dividends within the past 12 months. Dividend growth is good, while dividend cuts are very bad. Some of these companies may have variable dividend (distribution) payments due to the nature of their businesses. (There were eight companies with growth data missing.)

Another measure is the dividend payout ratio. It measures the percentage of earnings paid out as dividends. Twenty-eight of these companies have payout ratios above 100%, which are not sustainable. There was a high level of null values for this group as well, which means the company is losing money.

Cash from operations shows whether a company’s normal business operations are bringing in more cash (positive values) than they use (negative values). Eighteen of the 91 high-yield stocks on this list (19.7%) have negative cash flow. Negative cash flow is a cautionary signal.

Debt is an important consideration. Too much debt can hurt a company’s ability to pay dividends and, obviously, put it at risk of financial duress. In addition, debt covenants can force a company to cease dividend payments. The median long-term debt-to-equity ratio was 100.5%. This ratio implies these stocks are highly leveraged.

Finally, most of the companies on this list are small. The median market capitalization is just $672.9 million. Norwegian oil and gas company Equinor ASA (EQNR) is the largest with a market cap of $75.1 billion.                         

Not reflected in any of these numbers are tax issues. Distributions from REITs are taxed at ordinary income rates. MLPs have their own tax complexities, starting with the issuance of Form K-1. Some of these high yields may include return of capital. When a company returns capital, it lowers your tax basis in the stock.

While high yields can seem alluring, it’s always important to realize that they reflect a heightened level of perceived risk. Investors are demanding such high yields to justify the perceived elevated odds of incurring a loss on their investment. A large drop in a stock’s price will more than offset a high dividend. Therefore, while these double-digit yields have the appearance of being juicy, there is a real risk these stocks could leave you with an upset stomach.

Click here to download the full list of exchange-listed stocks yielding 10% or more.