So what happens when investors begin looking for dividend yields as high as 8%, 10% or even more than 15%? 24/7 Wall St. would consider this the dangerous dividend arena, where only the most aggressive investors should consider stocks with such high yields.
When dividend yields get too high, investors have to do extra analysis. Many companies with such high payouts are structured differently than a normal publicly traded company. These include unconventional real estate investment trusts (REITs), master limited partnerships (MLPs), business development companies (BDCs) and private equity companies.
Investors should also be extra diligent and question whether such companies can maintain their high yields. If income and cash flows are not suitable to cover the dividend payouts in the future, then there may be trouble. That is certainly not always the case, but investors have to do their homework.
When a company raises its dividend, that is an implied nod that the company has visibility or an expectation that it can keep paying those dividends for some time into the future. Things just don’t always go as investors hope. Still, some investors seem to just love high payouts no matter what the risks are.
24/7 Wall St. has evaluated nine high-yielding companies we consider to be only for the most aggressive investors pursuing high income. We selected companies with high dividend yields that either have made irregular payments to investors, have limited earnings coverage for their dividends or have otherwise have faced issues that created uncertainty for investors.
That being said, some of these companies may sustain their dividends for quite some time, if management can appropriately manage cash flows. Some yields featured here are pure dividends, but some are considered dividend equivalent yields because they include a return on capital and are technically distributions.