4 High-Yield Dividends of 10% or More With Upside Expected

March 11, 2016 by Jon C. Ogg

Investors love dividends and stock buybacks as the primary means for companies to return capital to shareholders. Dividends are actually easier to measure for an investor total returns calculation, and dividends account for about half of all long-term shareholder returns over time. Dividends are also supposed to express a company’s comfort with earnings expectations ahead.

What investors need to consider is that not all dividends are created equally. There are super-safe blue chip dividends. There are speculative dividends, and then are the high yield super-speculative dividends. These can be over 6%, 8% or even 10% in rare cases.

24/7 Wall St. wanted to screen for the 10% dividend yields to see which ones might be attractive for investors. After all, many are down handily from their highs. In an effort to avoid sector risk, the high payout master limited partnerships (MLPs) and other energy patch plays were avoided. Real estate investment trusts (REITs) are included here, along with the business development and the shipping sectors.

In our screen, we used a minimum of $1 billion in market cap — no reason to take chances on small cap and micro-cap stocks no one has heard of. We also set a minimum of 100,000 shares per day for an average trading volume, also to avoid small obscure stocks.

In order to qualify, each company had to have analyst coverage from at least four analysts. On the price versus analyst targets, the consensus analyst price target had to be within -5% under the current share price or had to be above the share price.

Profitability had to be here, but some companies have higher payouts than their classic earnings per share measurement. That is because some companies pay based on a distributable cash flow model. Our screen did force the issue that each company had to be profitable, and the screening of the dividend quality will have to be done further on a case-by-case basis.

On the risk side, investors need to understand that high yields come with higher risks than traditional stocks. There is also the notion that companies are not bound to maintain such a high dividend. Some dividends could be at risk, and most investors should expect a sharp sell-off if a dividend is cut or eliminated.

Annaly Capital Management

It may be far from the only mortgage-REIT for investors, but Annaly Capital Management Inc. (NYSE: NLY) has been a publicly traded entity since the 1990s, and its management team is considered to be among the best of the best. It has a dividend yield of 11.7%, based on a $10.20 share price. Annaly’s $1.20 per share trailing annualized dividend compares to earnings estimates of $1.15 per share for 2016.

Recent SEC data showed that Annaly has only about 60% institutional shareholders. This means that individuals have bought it for the dividend. Being tied to mortgage-backed securities comes with volatility, and the current $0.30 per share dividend is half of what it was at the peak in 2009 to 2011. Its dividend is of course subject to being dropped (or raised) based on its funds from operations and earnings per share, but that has been held steady for over two years now.

Annaly has a consensus analyst price target of $10.65 and a 52-week trading range of $8.25 to $10.93. Its market cap is $9.6 billion.

Apollo Investment

Apollo Investment Corp. (NASDAQ: AINV) is business development company that operates as a closed-end management structure. With shares at $5.26, its $0.80 annualized dividend generates a whopping 15% dividend yield. That payout also compares to a consensus analyst estimate of $0.84 in earnings per share for 2016. Apollo Investment’s dividend has never recovered to its pre-recession peak, but its payout has also been stuck at $0.20 per share since 2012.

Apollo Investment has a consensus analyst price target of $6.47 and a 52-week trading range of $4.26 to $8.03. Its market cap is $1.2 billion, and its average volume is over a million shares per day. Fitch recently downgraded Apollo Investment’s credit rating to BBB- from BBB, which means that it is now the lowest rating of the investment-grade classification.

Government Properties Income Trust

Another REIT, Government Properties Income Trust (NYSE: GOV) is externally managed and focuses almost solely on leasing property and buildings to federal, state, local and agencies that are considered governmental entities. It shows that 93% of rents are from governmental tenants. As of December 31, 2015, 94.5% of its rentable square feet at properties classified as continuing operations was leased. One issue of concern to some investors is that it has distributed to common shareholders shares of RMR common stock.

With shares at $15.52, its $1.72 trailing annualized dividend generates an 11.1% dividend yield. The consensus analyst earnings target here is $2.38 per share for 2016. Despite a rough share performance, the $0.43 per quarter dividend has been static since late in 2012.

Government Properties has a slightly lower consensus analyst price target at $15.00, but its market cap is $1.1 billion and its 52-week range is $12.33 to $23.51. The average daily volume is about 900,000 shares per day. While there is no way to know what the earnings and dividend will be ahead, you can loan the government money at less than 2% for a 10-year Treasury note or you can earn over 10% being a landlord to governmental offices.

Nordic American Tankers

Nordic American Tankers Ltd. (NYSE: NAT) has a 12.5% dividend yield, based on its $13.60 share price. Its trailing $1.72 per share annualized payout compares to earnings estimates of $1.19 per share for 2016.

Nordic American’s CEO recently appeared on CNBC talking up the proposition for its strong shipping volumes of its uniform double-hull Suezmax tanker fleet. The shipping giant continues to look for growth opportunities, despite the times being what they are in the energy sector. One risk exists here in that is that its dividend has varied since 2014, so its yield can at times be considered subjective or tentative.

Nordic American Tankers has a consensus price target of $14.92 and a 52-week range of $9.94 to $17.45. Its market cap is $1.22 billion. The average daily volume is close to 2 million shares.