Investing

8 Dividends Yields of 10% and Higher That May Have Upside Potential

Jon C. Ogg

Published: August 20, 2019 7:05 am

Last Updated: January 30, 2020 5:13 pm

Investors love their dividends. These payouts over time can supplement income needs for retirement, and they also can be reinvested to grow total returns over many years. A statistic commonly used in the media is that dividends may account for as much as 50% of total returns over an investor’s life. That may sound high, but with long-term Treasury yields currently at 2%, and with many solid dividends at 2% or 3%, it starts to sound more plausible. Yet, what are investors supposed to think when they see dividends close to 10% or even higher?

High dividend yields may sound quite attractive to investors, particularly at a time when the 30-year Treasury yield barely earns 2%. What is amazing is that some stocks with dividend yields of 8%, 10% and even higher actually may not be “too high” just because they sound like they would be. Some of these dividends may go higher as their shares rise ahead.

It’s a world where there are trillions of dollars worth of negative interest rates between Europe and Japan alone, and where the markets have to ponder lower interest rates and inverted yield curves in U.S. Treasuries. So it’s a time when more aggressive investors who need income might look at opportunities among the higher yields available in public stocks and related entities.

24/7 Wall St. has screened the dividend-paying companies with high yields. We first looked at companies with dividend yields of 8% or more based on the current share price. We then screened out the companies with a market cap of less than $500 billion. We then only screened for stocks in which the consensus analyst target price from Refinitiv was higher, or if the shares had sold off so much that they could be due for a recovery with any improvement at all. Special notes have been given on companies that have earnings per share estimates for 2019 and 2020 that are lower than the current dividend payouts or if the entities are paying dividends out of cash flows or via other means aside from traditional earnings coverage.

Additional notes may have been offered, if there seemed to be other dark clouds and if they needed more caveats. Most of these entities are within the areas of asset management or business development, real estate investment trusts (REITs) and master limited partnerships (MLPs). Some of these also may come with tax consequences over time, and many of the high-yield dividend stocks have seen dismal performances driving the yields higher in 2019.

Of the 40 or so entities that fit within the initial criteria, less than a fourth of the group stood out initially. Not all these have 10% dividend yields or distributions that come with a 10% yield equivalent, but on average these are above the 10% threshold.

Annaly Capital Management Inc. (NYSE: NLY) is one of the more well-heeled mortgage REITs in the market. It has a $13 billion market cap, even after losing almost 10% of its value in 2019, and it has more than 20 years of operating history. The 11% yield is based on a $1.00 per share annual payout and a $9.00 share price. The consensus analyst target of $9.89 also comes with a 10% assumed price appreciation potential, but JPMorgan had a $10 target price, and Nomura/Instinet had an $11 target earlier in the year. That $1.00 payout per year is against last year’s earnings of $1.20 per share, as well as expectations of $1.07 per share in 2019 and $1.09 per share in 2020.

Antero Midstream Corp. (NYSE: AM) has the look and feel of an MLP, but it is a corporation. Its $1.23 current distribution generates a 16% yield, based on its $7.65 share price, but the 52-week range of $6.55 to $19.57 should explain some of the dividend’s status today. Analysts have a consensus price target that is still up at $13.62, but the per-share earnings estimates of $0.73 in 2019 and $1.02 in 2020 leave some questions to be asked, even if the company reported earnings of $0.33 per share in 2018. Antero also comes with a recent history of missing on its earnings expectations, and the drop from its highs should speak for the underlying risk here.

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Icahn Enterprises L.P. (NYSE: IEP) is the investment vehicle associated with activist investor Carl Icahn. The current $8.00 annualized per unit distribution has grown since being held static at $6.00 per year from $2014 through 2017, but it is not really followed by Wall Street analysts. The Icahn entity’s current price of $69 or so compares with a 52-week range of $50.33 to $79.65. Note that this $14 billion entity has traded since the 1980s, and it went over $120 a share ahead of the Great Recession and challenged that high again back in 2013 and 2014. The current distribution indicates an 11.5% yield. With no analyst coverage to speak of, investors may have even a harder time predicting earnings and distributable gains and cash flows than in, say, Berkshire Hathaway.

National CineMedia Inc. (NASDAQ: NCMI) is an advertising network that sells through movie chains and theaters in nearly 200 market areas. It owns a 48.6% interest in National CineMedia and is the group’s managing member. It has more than the $500 million market cap, and after raising its dividend to $0.22 per quarter in 2011, it did lower that payout to $0.17 per quarter in 2018. The company is using a component of cash flow, cash and other metrics to pay a current dividend yield of 9.65%. While shares trade near $7, the consensus target price is $9.06 and the 52-week trading range is $5.88 to $10.94.

New Media Investment Group Inc. (NYSE: NEWM) is one in which investors are entirely on their own to evaluate whether the 18% dividend yield is sustainable. The company is in a pending merger with Gannett to consolidate the newspaper and media industry even further, and not every investor is happy with the terms, as Gannett has a $1.1 billion market value that is more than double that of New Media. This situation remains fluid, and New Media’s stock price drop from above $20 back in 2016 shows that it has not been immune to print media’s woes, With a recent share price of $8.30, New Media has a 52-week trading range of $7.08 to $16.25 and a consensus target price of $11.00.

New Residential Investment Corp. (NYSE: NRZ) is a residential credit mortgage REIT that has seen its share price fall handily from earlier in 2019. Still, its 14% dividend yield is above peers, and Wedbush Securities sees it rising from $14.20 currently to as much as $18.00. Surprisingly, the consensus target price was even higher than the 26% or so upside called out by Wedbush. Its current $2.00 annualized per share dividend payment has been covered more in depth after the recent analyst call, but the shares are down 21% from a year ago and down about 15% in the past 90 days or so.

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Tanger Factory Outlet Centers Inc. (NYSE: SKT) has been public and has paid dividends for more than 25 years. The REIT and outlet center operator has still managed to grow its dividend since recovering from the Great Recession, and there appear to be some continued concerns over its ability to operate in the current retail apocalypse, when Amazon and online sellers are eating into every retailer. The $1.42 per share annualized dividend comes with a 9.7% yield, against a $14.65 share price, but the 52-week range of $14.51 to $24.91 should explain just how concerned the investing community is about earnings in the future. The consensus target price of $15.17 also isn’t exactly robust, considering the current price and how much it has come down from the highs, as this peaked at more than $40 back in 2016.

Western Midstream Partners L.P. (NYSE: WES) is a $10 billion MLP, and its current annualized distribution of $2.47 per unit generated a yield equivalent of 10.6%, based on the current $23.20 price. With that unit price down from a 52-week high of $36.16 during the recent exodus of anything tied to energy, its consensus price target is still somehow up at $32.50. Western Midstream has continued to grow its quarterly distributions since 2013, and when it offered its 2019 outlook, it noted that its distribution coverage ratio was 1.20 times. With equivalent earnings per unit of $1.69 in 2018, its consensus estimates are $1.89 per unit in 2019 and $2.27 per unit in 2020. Still, revenue of more than $2.2 billion peaked in 2017, and 2019 and 2020 are expected to be the recovery years to back above that.