3 Stocks with Dividends Above 6%
A dividend yield above 6% sounds like comfortable income that few stocks offer today. But the same number can conceal completely different businesses. In one case, a stable payout is backed by a thin capital cushion; in another, it is a variable dividend that closely tracks maritime freight rates. In this analysis, we examine where a high yield makes sense, where screeners distort it, and what to watch out for before buying.
Key points
Three companies offer dividend yields above 6%, but each generates them in a completely different way. While one pays a stable amount, the dividends at the other two can change by hundreds of percent in a single quarter.
Standard stock screeners show dividend yields below 4% for some companies, even though they actually paid out nearly 7% over the past 12 months. Which figure should investors trust?
One of the companies analyzed increased its quarterly dividend by more than 400% year over year. But behind that growth is a cyclical business where conditions can turn around very quickly.
A dividend yield above 6% and a payout ratio of around 55% look like an ideal combination. But at one small bank, the main risk lies somewhere other than earnings.
Shares of two companies have risen by more than 60% over the past year, and their dividends are benefiting from high freight rates. Will the current payouts last, or is the exceptionally profitable period nearing its end?
Seeking a high dividend yield is one of retail investors’ most popular strategies. Regular income from stocks can offset price fluctuations, and companies yielding more than 6% can return a significant portion of an investment over just a few years. But dividend yield is simply the dividend divided by the share price, and both components can be misleading. The price may be low because the market senses a problem. The dividend may be temporarily high because the company has just had a record quarter.
That’s why we selected three companies for this roundup, each clearing the 6% threshold for a different reason. The first is a small community bank with a fixed dividend; the other two have variable payout policies and are benefiting from an exceptionally strong year in the maritime shipping markets. Together, they illustrate three basic questions every dividend investor should ask:
Where does the dividend come from?
How reliably is it calculated?
How long will it last?
With variable dividends, we also run into a problem that keeps coming up in our analyses. Screeners and data services calculate “annual dividends” using different methods, and for irregular payouts they often produce figures that have little to do with reality. For two of the three companies, the gap between the displayed yield and the yield actually paid is several percentage points. Let’s take a closer look and find out what’s really going on.