1. Annaly Capital Management
> Dividend yield: 11.10%
> Annualized dividend: $1.20
> Share price: $10.83
> 52-week range: $9.66 – $12.22
> P/E ratio: 9.26
> Industry: Real Estate
Annaly Capital Management Inc. (NYSE: NLY) is a high-yield mortgage REIT. Because mortgage REITs use leverage to buy mortgage-backed securities, the sector is extremely sensitive to changes in interest rates. The Federal Reserve is widely expected to raise interest rates in 2015, with many Fed policymakers expecting rates to rise even further in the years ahead. The Fed is also expected to begin shrinking the size of its more than $4 trillion balance sheet, with some $1.7 trillion held in mortgage-backed securities. Annaly may still have a very high 11% yield, but its 30 cent per quarter dividend has been in decline since peaking at 75 cents in 2009. This $1.20 annualized dividend compares to an earnings per share (EPS) estimate of $1.17 for fiscal year 2014 and $1.26 for fiscal year 2015. The good news is that the current share price, at $10.83, is below the consensus analyst price target of roughly $11.80.
> Dividend yield: 9.50%
> Annualized dividend: $3.00
> Share price: $30.94
> 52-week range: $30.07 – $55.74
> P/E ratio: 6.71
> Industry: Oilfield Services, Offshore Drilling
Transocean Ltd. (NYSE: RIG) has such a high-yield dividend that it seems hard to imagine it not being cut. However, the verdict remains out as to whether the offshore driller can continue to pay a dividend of 75 cents each quarter — or $3.00 each year. Transocean’s 2013 EPS came to $4.11, and while EPS is expected to rise to $4.61 in 2014, it is also expected to fall to just $3.04 per share in 2015. On top of that, analysts expect revenues to drop 5% in 2014 and 4% in 2015. The company recently brought the Transocean Partners LLC MLP public in order to fund new fleet purchases, as well as its dividend. The company also changed its domicile to Switzerland, back before tax inversions became common. Maybe Transocean will keep up its dividend, but it is definitely a risky one.
3. Windstream Holdings
> Dividend yield: 9.10%
> Annualized dividend: $1.00 now; $0.70 ahead
> Share price: $10.61
> 52-week range: $7.18 – $13.30
> P/E ratio: 53.05
> Industry: Telecommunications
Windstream Holdings Inc. (NYSE: WIN) is a communications and cloud services provider for businesses. Short interest in the stock is high, at over 61 million shares and a days-to-cover ratio of 10.8. Windstream may have a found a way to keep its dividend going strong, while simultaneously silencing its dividend critics and short sellers. The company has benefited from plans to spin off its assets into a publicly traded REIT. According to the company’s release in July:
Following the spinoff, the expected annual dividend per share in the aggregate for the two companies will be $0.70 per current Windstream share, with Windstream expected to pay an annual dividend of $0.10, while the REIT will have an annual dividend equivalent to $0.60.
Windstream shares responded favorably to the announcement. The company’s past $1.00 payout, and $0.70 combined payout ahead, compares to EPS in 2013 of $0.35, $0.20 estimated for 2014 and $0.30 per share for 2015.