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Intro to High Yield Stocks
Companies with high paying stock dividends are a different class of investment from the usual stock market investments. There are pools, pockets and types of stocks in the markets that pay very attractive dividend yields to investors. Corporations pay dividends to shareholders as a way of distributing some of the company profits to the stock owners. There are certain corporations that make a point of delivering high dividends to stock owners. Many of these companies are organized under special exemptions in the tax code that reduce or eliminate the corporate income taxes if the majority of a company's income is paid out as dividends.
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Finding High Dividend Stocks
Traditionally utility, gas and electric company stocks paid steady high yields. The deregulation of these industries have eliminated most utility stocks from consideration as high yield investments. The current crop of high paying stock dividend investments have words like trust and partnership in their names. A popular sector for high yield stock is real estate investment trust--REIT--stocks. REITs are required to pay out 90 percent of their free cash flow as dividends to maintain their REIT status. Energy and resource companies organized as master limited partnerships--MLP--or limited partnerships are also a source for high stock dividends. Oil and gas drilling and production companies, timber, coal and pipeline companies organized as some type of partnership pay out a high percentage of income to maintain their tax status. Finally, shipping companies, companies with cargo and container ships, often pay excellent dividend yields. When times are good, shipping companies make a huge amount of cash and they have few options to put the extra cash to work, so they pay it out as dividends.
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Analyzing High Yield Stocks
There is an art, challenge and definitely some pitfalls when evaluating high dividend stocks. The highest yielding stocks are those the stock market believes will cut or eliminate the dividend, and often that is the outcome. High yield stock investors need to dig into the dividend history of a stock and determine if the company has the business and cash flow to support the dividend payout. Many high yield stocks use borrowed money to buy their assets and produce products whose prices fluctuate with market conditions. The perfect high stock dividend company is one with a steady stream of revenue, low debt and the ability to grow the business or increase the price of its product. That stock doesn't exist, but the model gives you a benchmark to compare high dividend stocks against low yield stocks.
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Attractive High Yield Stocks
Here are a few high yield stocks. They are from different market sectors and are not investment recommendations.
- Ienergy, LP. Stock symbol NRGY. Note the Limited Partnership in the name! This propane retail and natural gas storage and processing company has increased the quarterly dividend every quarter for over 7 years. Still yielding 7.8% at a stock price of $35.70.
- Ship Finance Ltd. Symbol SFL. This shipping company owns cargo and tanker ships and leases them out to other shipping companies on guaranteed contracts. When the financial crisis hit shipping, SFL cut the 60¢ in half. The lower payout has been in effect for two years and is covered by about $1.50 in cash flow each quarter. The yield is 7.5% with the stock at $18.
- Navios Maritime Partners, L.P. Symbol NMM. Here is another partnership. NMM is a spin off from the mothership, Navios Holdings. It appears NMM gets to pick the cream of the parent company's shipping contracts. NMM kept paying and increasing the dividend right through the shipping crisis. Yield is 10.8% with the stock at $15.50.
- Monmouth Real Estate Investment Corp. Symbol MNR. This REIT stock has paid a 15¢ quarterly dividend forever. The company is conservatively managed and owns commercial property. MNR yields 8.5% at a stock price of $7.15.