Investors love their dividends. These payouts over time can supplement income needs for retirement, and they also can be reinvested to grow total returns over many years. A statistic commonly used in the media is that dividends may account for as much as 50% of total returns over an investor’s life. That may sound high, but with long-term Treasury yields currently at 2%, and with many solid dividends at 2% or 3%, it starts to sound more plausible. Yet, what are investors supposed to think when they see dividends close to 10% or even higher?
High dividend yields may sound quite attractive to investors, particularly at a time when the 30-year Treasury yield barely earns 2%. What is amazing is that some stocks with dividend yields of 8%, 10% and even higher actually may not be “too high” just because they sound like they would be. Some of these dividends may go higher as their shares rise ahead.
It’s a world where there are trillions of dollars worth of negative interest rates between Europe and Japan alone, and where the markets have to ponder lower interest rates and inverted yield curves in U.S. Treasuries. So it’s a time when more aggressive investors who need income might look at opportunities among the higher yields available in public stocks and related entities.
24/7 Wall St. has screened the dividend-paying companies with high yields. We first looked at companies with dividend yields of 8% or more based on the current share price. We then screened out the companies with a market cap of less than $500 billion. We then only screened for stocks in which the consensus analyst target price from Refinitiv was higher, or if the shares had sold off so much that they could be due for a recovery with any improvement at all. Special notes have been given on companies that have earnings per share estimates for 2019 and 2020 that are lower than the current dividend payouts or if the entities are paying dividends out of cash flows or via other means aside from traditional earnings coverage.
Additional notes may have been offered, if there seemed to be other dark clouds and if they needed more caveats. Most of these entities are within the areas of asset management or business development, real estate investment trusts (REITs) and master limited partnerships (MLPs). Some of these also may come with tax consequences over time, and many of the high-yield dividend stocks have seen dismal performances driving the yields higher in 2019.
Of the 40 or so entities that fit within the initial criteria, less than a fourth of the group stood out initially. Not all these have 10% dividend yields or distributions that come with a 10% yield equivalent, but on average these are above the 10% threshold.
Annaly Capital Management Inc. (NYSE: NLY) is one of the more well-heeled mortgage REITs in the market. It has a $13 billion market cap, even after losing almost 10% of its value in 2019, and it has more than 20 years of operating history. The 11% yield is based on a $1.00 per share annual payout and a $9.00 share price. The consensus analyst target of $9.89 also comes with a 10% assumed price appreciation potential, but JPMorgan had a $10 target price, and Nomura/Instinet had an $11 target earlier in the year. That $1.00 payout per year is against last year’s earnings of $1.20 per share, as well as expectations of $1.07 per share in 2019 and $1.09 per share in 2020.
Antero Midstream Corp. (NYSE: AM) has the look and feel of an MLP, but it is a corporation. Its $1.23 current distribution generates a 16% yield, based on its $7.65 share price, but the 52-week range of $6.55 to $19.57 should explain some of the dividend’s status today. Analysts have a consensus price target that is still up at $13.62, but the per-share earnings estimates of $0.73 in 2019 and $1.02 in 2020 leave some questions to be asked, even if the company reported earnings of $0.33 per share in 2018. Antero also comes with a recent history of missing on its earnings expectations, and the drop from its highs should speak for the underlying risk here.