It is no secret that investors love collecting dividends from their investments. Almost half of all total returns through time can be attributed to dividends. Many investors also count on dividends to supplement their income through retirement or heading toward retirement. Dividends are also a great source of capital that can be reinvested for years and years.

If investors have an endless love for dividends, does that mean that the higher a dividend is the better it is? This gets complicated, particularly when dividends start to get too high. There is a class of dividends that is above and beyond the normal scope in the high-yield dividend sector. This is where dividend yields are 10% or higher.

Many investors might lick their chops at the thought of earning 10% in income per year. The harsh reality is that many investors simply cannot or should not take on the risk of 10% payouts. It is important to keep in mind that the yield on the 10-year Treasury was just 2.25%, and the 30-year Treasury yield was not even 3%, while the average Dow Jones Industrial Average stock’s dividend yield was about 2.5%.

24/7 Wall St. screened companies with 10% yields and gave a preference to those with a market cap of $1 billion or higher. This was to avoid those tiny, risky companies that may be unknown to most investors. We also checked with their corresponding press releases about dividends and dividend policies and pointed out if there were overhanging yield-risk issues.

These companies and outfits with such high yields sometimes are not traditional companies and their “yields” are not always traditional yields. They can be classified as master limited partnerships (MLPs), real estate investment trusts (REITs) or business development companies (BDCs), or they could be troubled businesses tied to coal, energy, telecom, media or other challenged sectors. Closed-end funds were also used in this screen for their implied diversity.

Some of these payouts are considered distributions rather than classic dividends, so they are considered “yield equivalents” instead of classified strictly as a dividend. Before thinking these dividends or distributions are all safe, we have tried to point out many risks here as well as the high yields. After all, we wouldn’t want you thinking that we just aimless focus on the bright side of investing.

First and foremost, investors need to remember that dividend cuts are rarely received positively by investors. Some of these entities have or may experience cuts. Many high yield companies have to lower their dividends over time, and some may even have to abandon their payouts entirely. Some of these entities also may have fluctuating dividends or distributions due to how their tax and business structure is. And some have been pointed out as having already cut their payouts.

As a reminder, there is no such thing as a “blue chip” stock that yields 10% or more. That would be in many cases more than each company’s entire earnings per share. We also focused on companies where their primary business is domestic to avoid any of the international and geopolitical risks that can drive investors nuts.

Almost all these stocks or units have at least one analyst with a projected upside to the formal price target, and many of them have consensus analyst price targets that are higher than the current share prices. While many investors seek high income from stocks and funds, 24/7 Wall St. wants to remind investors to do serious due diligence of their own to make sure that the dividend is sustainable.

Here are 15 entities that have payouts with yields or yield equivalents of 10% or more.

AGNC (REIT) at 10.1%

AGNC Investment Corp. (NASDAQ: AGNC) is fresh off a $500 million capital raise, which the mortgage REIT will use to buy new agency and non-agency securities (including credit risk transfer securities), mortgage-related assets and hedging instruments — and of course for general corporate purposes, which can include dividend payments.

The $2.16 annualized dividend and current $21.35 share price generates a yield of about 10.1%. While the 52-week trading range is $17.30 to $22.34, the consensus analyst price target is at $20.20. Most firms have a Neutral rating.

Alliance Holdings (Coal) at 10.5%

Alliance Holdings G.P. L.P. (NASDAQ: AHGP) produces and markets coal primarily to utilities and industrial users in the United States, so it is in the unloved coal sector. It claims a $1.5 billion market cap, and its units have a distribution of $2.92 per year, which generates a yield of close to 10.5%. With shares at $27.12 on last look, its consensus analyst target price is up at $32.00 and it has a 52-week range of $22.71 to $32.70.

Its last distribution of 73 cents was paid in August, and that was higher than the 55-cent rate for the prior year and lower than its previous 96-cent distribution at the start of 2016. Even with the administration defending coal, coal in general still seems to have more pressure than upside as an industry.

Calamos (Closed-End Fund) at 10.1%

Calamos Convertible and High Income Fund (NASDAQ: CHY) is a closed-end fund with an $850 million market cap and a current yield of 10.1%. The management group (Calamos) recently announced a private placement of almost $600 million worth of mandatory redeemable preferred shares covering this and other closed-end funds. That 10-cent monthly dividend has been in place since being raised from 8.5 cents back in early 2014.

While its net asset value was not at a premium above the share price, the actual income yield is lower than its payout yield, and it did have almost 30% leverage. At $11.86 a share, this closed-end mutual fund yields 10.1%, and it has a 52-week range of $9.91 to $12.15.

CBL & Associates (REIT) at 12.0%

CBL & Associates Properties Inc. (NYSE: CBL) is a public REIT that focuses on regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties, primarily in the southeastern and midwestern United States. Its current dividend yield is over 12%, and it is worth more than $1.4 billion.

Its shares are trading at $8.33, in a 52-week range of $7.14 to $13.09. CBL has a 26.5-cent payout per quarter, above its latest 18 cents in earnings per share but under its latest 5 cents per share funds from operation. Its consensus analyst target price is $8.89, and the street-high analyst target price is still up above $11.

CenturyLink (Telecom & Communications) at 11.0%

CenturyLink Inc. (NYSE: CTL) remains among the highest yields of them all in telecom and communications, and the company has still been securing state and other approvals to complete its acquisition of Level 3. It seems hard to imagine that the company is going to be able to keep its dividend that high after (and if) the deal is completed. Level 3 doesn’t even pay a dividend, and this is a leveraged buyout.

At $18.50 a share and with a $10 billion market value, CenturyLink has a dividend yield of about 11%. If the $2.16 annualized payout is above its earnings and the merger is leveraged, how can the payout easily be maintained? CenturyLink has a 52-week range of $18.17 to $33.45. Its consensus analyst target price of $25.53 almost feels too high after a big sell-off, and this feels like a dividend cut has to be coming.

Chimera (REIT) at 10.3%

Chimera Investment Corp. (NYSE: CIM) is a top-notch investor in what might feel like riskier mortgage REITs. Its dividend of 50 cents per quarter is currently higher than the 48-cent quarterly dividend back in 2016, and it has fluctuated over time. The shares trade at $19.35 and come with a $3.6 billion market cap, within a 52-week range of $14.70 to $20.90. Its current yield is about 10.35% for new investors.

While the consensus analyst target is $18.88, Deutsche Bank was last seen in August with a $20 price target. Its core GAAP book value was $16.54 per share at the end of the second quarter, with core earnings of $0.60 per share and GAAP earnings of $0.56 per share.

Energy Transfer Partners (MLP) at 11.6%

Energy Transfer Partners L.P. (NYSE: ETP) engages in the natural gas midstream and intrastate transportation and storage businesses in the United States, and investors receive an 11.6% distribution yield-equivalent. Trading at $18.63, it has a 52-week range of $17.85 to $29.76, which shows pressure on the $21 billion or so entity. As a reminder, 24/7 Wall St. observed that most MLP investors understandably became spooked about distributions after Plains All American cut its payout unexpectedly, and Energy transfer’s units are currently priced under when that unexpected distribution was announced.

The consensus analyst target price for this MLP is still close to $26, and the lowest analyst target of $23 just feels high considering this current investor climate.

FS Investment (BDC) at 10.0% … Maybe

FS Investment Corp. (NYSE: FSIC) is an alternative investment manager and claims to be the largest manager of BDCs, with over $20 billion in assets under management. Its BDC direct lending platform committed more than $1.1 billion in senior secured loans and other debt and equity financing to middle market companies in the second quarter of this year alone. While the current $0.22 dividend is well over the 10% yield threshold, FS Investment said in August that it plans to reduce that payout to $0.19 — but in 2018 it plans to have a special distribution that may make the payout higher.

At $8.10 a share, its market cap is right at $2 billion. The 52-week range is $7.95 to $10.80, and the stock has a $9.10 consensus target price.

Icahn Enterprises (Investment/MLP) at 11.0%

Icahn Enterprises L.P. (NASDAQ: IEP) has its existence tied to Wall Street legend Carl Icahn. This is his publicly traded investment arm that acts as an MLP but invests in passive and active holdings in automotive, energy, gaming, media, rail, mining, food, metals real estate and home décor. In short, Icahn and his team probably would invest in any company in which they can “make a buck or two.” This entity has been public since 1987, and at $54.25 a share it has a market cap of about $9 billion and a 52-week range of $45.42 to $64.80.

Icahn Enterprises pays a $1.50 quarterly distribution, the same since 2014, with a yield equivalent of over 11%. Jefferies recently put a $61 price target in Icahn Enterprises, but the consensus target price is just $50.00.

Kayne Anderson MLP (Closed-End Fund) at 11.2%

Kayne Anderson MLP Investment Co. (NYSE: KYN) is an oil and gas MLP closed end-fund with a market cap of just over $2 billion. It does have preferred shares for leverage, and it was last seen valued at a 3% premium to its net asset value. This has a distribution yield of 11.2% currently, and it is shown to have leverage of more than 40%. Trading at $17.91, this MLP closed-end fund has a 52-week range of $16.51 to $22.15.

Kayne Anderson MLP’s distribution was last seen at $0.45 per quarter, but that has slid from $0.55 previously. This payout used to be even higher than that before the oil meltdown.

New Media (Media) at 10.0%

New Media Investment Group Inc. (NYSE: NEWM) may sound new, but this $730 million market cap new media company operates small newspapers and other circulations with a property count of more than 600. Its revenue of $322.9 million was up 2.6% in the second quarter from the prior year, and the $0.35 per share dividend is against income of $14.9 million, if you back out the company’s charges. Digital revenue has grown while the existing papers decline. This $1.40 per share annualized payout and the $13.85 share price generate a yield of just over 10%. New Media Investment Group has a 52-week trading range of $11.87 to $17.19 and a consensus price target of $16.67.

The company announced in 2016 that it was raising $120 million in new capital to fund acquisitions and other uses. That almost certainly has to include dividend payments, after giving an upbeat tone to how it sees its markets ahead.

NuStar Energy (MLP) at 10.7%

NuStar Energy L.P. (NYSE: NS) is an MLP engaged in terminalling, storage, transportation and marketing of energy products, and it has a market cap of about $3.8 billion. At $40.98 share, it has not been immune to energy and MLP woes, but the current $4.38 distribution generates a yield equivalent of 10.7%. It has a 52-week range of $37.30 to $55.64, and the consensus target price is $49.44.

Wells Fargo is more conservative than consensus here, and it lowered its distributable cash flow per unit to $3.56 in 2017 and $4.08 in 2018, but it still had a $47 target after earnings in August.

PennyMac (REIT) at 11.0%

PennyMac Mortgage Investment Trust (NYSE: PMT) is a $1.1 billion California-based specialty finance company taxed as a REIT that invests in residential mortgage loans and mortgage-related assets via direct investing and via correspondent production. Its $0.47 quarterly dividend per share generates an 11% yield, based on its $17.00 share price. That being said, the payout was $0.61 per quarter in 2015 and was well above $0.50 prior to that. Its latest book value per share was $20.04, and its return on average common equity was 8%.

PennyMac has a 52-week range of $14.28 to $18.46. While its consensus target price of $16.90 is under the current price, Credit Suisse has a $19 target price and believes that portfolio asset sales could juice its earnings up.

Prospect Capital (BDC) at 10.7%

Prospect Capital Corp. (NASDAQ: PSEC) is a business development company (BDC) with a $2.4 billion market cap that specializes in many stages and sizes of companies. The BDC also invests in multi-family residential real estate deals and will co-invest in larger deals. At $6.72, its 52-week range of $6.54 to $9.58 should show that it has been under pressure. Please note that Prospect Capital did recently lower its distribution and the new $0.06 per share monthly payout is significantly lower than the prior month — but it still generates a yield of 10.7%.

The consensus analyst target price is $6.50, but BMO Capital Markets has a $7.00 target. Prospect’s net investments turned negative and some of those trends may persist, but even after declining its net asset value was last seen at $9.32 per share.

Waddell & Reed (Finance) at 10.0%

Waddell & Reed Financial Inc. (NYSE: WDR) is a financial planning company that dates back to 1937 and claims more than 3,500 financial advisors and $80 billion in assets under management. Kansas-based advisory firm’s assets under management have been in decline. Its $0.46 quarterly dividend ($1.84 annualized) per share has risen over the years, and that currently generates a 10.0% yield based on its $18.32 share price. Waddell & Reed has a $1.5 billion market cap, with a 52-week trading range of $15.02 to $22.45 per share.

The consensus analyst target price of $18.00 is just under the current share price, but Evercore ISI and Jefferies have $19 price targets. The consensus earnings estimate is just $1.44 per share in 2017 and $1.57 per share in 2018, so that could imply some dividend pressure ahead, if you want to consider the risks.

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

As a final reminder, we have tried to point out the specific risks or general industry risks on each of these entities, on top of just focusing on their yields. Very few of these entities would come even remotely close to passing the traditional “widows and orphans” suitability tests.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.