With bond yields falling across the globe, investors may be tempted to seek yield in high-dividend stocks.
The problem? While fixed income investors who hold a bond until maturity will get their payments unless the issuing company or government defaults, equity investors are in a very different boat. A company may simply choose to reduce its dividend or to stop paying one completely.
Recently, investors in Anadarko and ConocoPhillips were painfully reminded of that lesson. Other companies that have recently cut their dividends include Noble Energy and Kinder Morgan; Chesapeake Energy suspended the dividend on its preferred shares, and Marathon Petroleum announced it would reduce the pace of dividend increases.
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With oil prices falling mightily, it is probably no surprise that energy companies have looked most vulnerable to dividend reductions.
Yet there are still juicy dividends to be found outside the energy sector. Those yield-seekers who get palpitations at the very idea of investing in a high-dividend energy stock might start their hunt by examining the eight nonenergy companies that pay the highest dividends:
To be sure, these companies do not all appear to be rock-solid. A high yield can be caused by a rising dividend, but also by a falling stock — and these eight companies all fall solidly in that latter category.
The biggest decliner in the bunch is Navient. Shares of student loan servicing company are down 60 percent in the past year, and Navient has recently generated some pretty negative headlines; it is under investigation by the Consumer Finance Protection Bureau, and presidential candidate Hillary Clinton said Saturday that the company is “doing some really terrible things.”
Even the real estate investment trusts in the bunch, HCP andWelltower, are down 35 percent and 28 percent respectively, even though REITs are famous for their high yields.
Meanwhile, shares of leading nonenergy dividend payer Frontier Communications have lost almost half of their value in the past year.
For technical analysts like MKM Partners’ Jonathan Krinsky, the falling charts are a sign to stay away from these stocks, no matter how tempting their yields.
“We’re all for high dividends, but you’ve got to be careful buying stocks in downtrends simply because they have high dividends,” Krinsky said. “A lot of these stocks, maybe they yield 5 to 8 percent — you can lose that in a day or two in the underlying stock.”
Krinsky would instead recommend somewhat-lower-dividend names with rising share prices, like AT&T and Coca-Cola.