5 interesting stocks with a giant dividend above 10%
Investing in high dividend stocks is an attractive option for investors looking for regular cash flow from their investments. Higher dividends usually indicate that a company has a strong financial background and the ability to consistently pay out profits to shareholders. However, caution should be exercised with stocks with the highest dividend yields.
Dividend yields above 5% should be a warning to investors. This is because they usually indicate that the company is struggling to grow and has nowhere else to park its profits but with shareholders. Very high dividends may also not be sustainable in the future unless the organisation improves its financial position.
High dividend stocks can be an interesting opportunity for some investors. However, it is important to carefully analyze the company, its industry, dividend history, growth potential and the risks that such an investment entails. Only a diversified and well thought out investment approach can return the expected returns while providing sufficient capital protection. A high dividend may be fine, but it is really important to remember that it is not hard to get caught in a dividend trap.
A dividend trap is a term used to describe a stock that pays a high dividend but offers limited growth potential or has an underperforming financial position. Dividend traps have several common characteristics. They typically pay high and stable dividends, usually above 5%, which attracts investors. However, the share price declines over the long term because the company has no growth potential. The company has difficulty generating sufficient cash flow to meet its business objectives. It pays dividends from its reserves or borrows. The company's financial position is undermined and high dividends are not sustainable in the long term.
Management does not have a clear strategy to improve the situation and grow the company.
Therefore, it is important for investors to detect dividend traps in advance by studying the financial health and growth prospects of the company, not just monitoring the amount of dividends paid. Otherwise, they risk losing both future appreciation and their dividend investment if the company goes bankrupt.
Ares Capital $ARCC-0.1%
Ares Capital, the largest BDC (business development company) by market capitalization, now offers attractive dividends reaching nearly 10.6%. As a BDC, Ares is not burdened with income taxes as long as it returns at least 90% of its earnings to shareholders. The high yield reflects investor concerns about a mass default due to rapidly rising interest rates.
A BDC, or Business Development Company, is a type of investment company that specializes in providing finance and advice to small and medium-sized businesses. They are registered with the SEC under the Investment Company Act of 1980. They provide money in the form of loans, credits or shares to small and medium-sized businesses that would otherwise not have access to capital. They often focus on a specific sector or region. They usually have over 100 clients in their portfolio, which allows them to better diversify their risk. They are required to pay out at least 90% of their profits to shareholders as dividends because of their special tax status. They represent an interesting opportunity for investors to invest in small companies and receive regular cash flow in the form of high dividends. However, they are generally higher risk than traditional investment companies.
Ares Capital typically lends to mid-sized companies that should be rated below investment grade. These companies in need of capital access relatively high interest rates. More than four-fifths of their liabilities are variable-rate, meaning that the company's returns will rise sharply unless there is an extreme default.
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Innovative Industrial Properties $IIPR-1.6%
Innovative Industrial Properties is classified as a contrarian REIT. It is a company that leases real estate to U.S. cannabis cultivation businesses . But its stock is down 37% in six months.
However, IIPR has its merits as well. Analysts believe that even growth-wise it can bounce off the bottom in a significant way. The REIT's dividend is another strength of the company, currently standing at nearly 10.6%. Dividend payouts have also increased by about 70% over the past 3 years. The challenge for IIPR remains the difficult environment for the cannabis industry. The oversupply of cannabis is hampering tenant growth and causing financial problems for some. However, once the imbalance between supply and demand is resolved, IIP and its tenants could strengthen.
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Medical Properties Trust $MPW-2.6%
If you're looking for stocks with extremely high yields, consider Medical Properties Trust, a REIT specializing in hospitals.
Medical Properties Trust is a hospital real estate investment trust. MPW owns and operates healthcare properties,primarily hospitals and specialty medical facilities throughout the United States.
It leases these facilities to hospital operators and other healthcare providers. Due to its tax-advantaged REIT status, it again distributes at least 90% of its earnings to investors as dividends, offering a high dividend yield. The operating risk is the rent performance of the largest tenants, which are healthcare providers. Which has become apparent this year. The main model is to provide properties on long-term leases and collect stable rents.
It currently offers a dividend of over 13.9% relative to the current share price. One of the reasons for its high yield is the fall in the share price. They are down almost 35% in six months and about 53% in 2022. However, some analysts expect a rebound from the bottom.
The outlook for hospitals is generally improving. MPT believes it will recoup most of the money that key tenant Prospect Medical defaulted on this year. It's possible that the worst may be behind the beleaguered REIT. But there's quite a difference of opinion on the stock, and both camps are pretty radical, and the whole company has become quite controversial. But also watch out for the sustainability of the dividend - a Payout of 171% doesn't bode well.
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PennantPark Floating Rate Capital $PFLT-0.3%
We've had BDCs before. Next up is PennantPark Floating Rate Capital, offering a yield of over 10.92% at recent prices and a comfortable monthly payout.
Like Ares Capital, it focuses on mid-sized companies with a proven ability to generate cash, plus it limits its investments to companies with private equity backers. Over the past year, the Fed has raised rates drastically... And all of the borrowers in PennantPark's portfolio are threatened by rising rates, yet only three companies are distressed, accounting for just 0.6% of the entire portfolio.
Despite rising rates, delinquencies have been able to decline in 2022. Whereas at the end of 2021, distressed companies were worth 2.5% of the portfolio, they are now only a small minority. PennantPark recently raised dividends by half a cent to $0.10 per share, so investors can expect further increases. With delinquency reduction and earnings growth in 2022, the company may please investors with another dividend increase.
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Petróleo Brasileiro S.A. - Petrobras $PBR+0.9%
Petrobras is the largest energy company in Latin America and one of the largest in the world. Petrobras and its subsidiaries provide a wide range of petroleum services.
Petrobras' core business is the production and processing of oil and natural gas in Brazil, along with refining, petrochemical production, biofuels and power generation. Its key assets include deposits on the Brazilian shelf with huge oil and gas reserves.
Currently, Petrobras produces more than 2 million barrels of oil per day. Brazil is the state owner of more than half of Petrobras' outstanding shares, which complicates the company's strategic decision-making. Recently, Petrobras has faced pricing pressure, production cuts and controversies surrounding corruption.
The dividend here is approaching 50% or more. But this is an extraordinary swing. The normal value is then a round 11%-15%, which is still absolutely insane. But it is important for investors to remember that this is a very risky investment because of the geopolitical risk and the dividend is certainly not sustainable in this form.
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What about you? Do you have a favorite here? What is the maximum dividend amount you consider safe?
Disclaimer: This is by no means an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.
I'm pretty worried about Brazil, so I'm sticking with US REITs.
I have $MPW-2.6% after yesterday's drop I will probably buy some, yes it's risky but the dividend yield is nice and I like the business they are in, hospitals will always be needed.
Nice post