Last month, I told you about a new feature I recently introduced to my premium newsletter, High-Yield Investing.
To put it simply, the goal of the newsletter is simple. It's right there in the name. But since every investor's situation is different, everyone has a different opinion of what exactly a "high" yielder is -- especially in today's low-yield market.
But there can be no equivocation about the regular screen we introduced to show the 10%-plus yielders out there. Sure, the quality of these names may differ -- and they may or may not merit inclusion into the newsletter's portfolio. But my mission is clear: to identify as many opportunities in the high-yield market as possible.
While evaluating the most recent pool of double-digit contenders, it didn't take long to notice that many of these stocks are losing ground. For instance, crude oil shipper Frontline (NYSE: FRO) has retreated 27% so far in 2017. And others have fared even worse. Greenhill & Company (NYSE: GHL), an investment banking group, has tumbled 43%.
That's not to say they can't bounce back in time. But clearly, the market sees some obstacles in the path right now.
This doesn't come as much of a surprise. Stocks don't usually appear on the list of 10% yielders because their distributions have suddenly soared. Instead, it's because their share prices have fallen sharply. That's another reason why it doesn't pay to blindly chase yields -- more often than not, you'll find yourself investing in a troubled business.
With that in mind, this month's screen was designed to see which of these double-digit payers are actually in favor. So I looked for those with positive 2017 returns, specifically the winners that are actually outperforming the 13.4% return of the S&P 500.
If you're beating the market, odds are you must be doing something right. At the very least, it likely means that your dividends are on solid ground. It's a straightforward premise -- but sometimes simple can be powerful.
Here's what came back.
| Company | Industry | YTD Return | Yield |
|---|---|---|---|
| Asian Pay Television (APTTF) | Television | 62.0% | 11.6% |
| Sunoco (SUN) | Refining | 24.6% | 10.7% |
| Chimera Investment (CIM) | Real Estate | 20.3% | 10.4% |
| New Residential Investment (NRZ) | Real Estate | 14.0% | 11.7% |
We all know that the market isn't perfectly efficient. Sometimes, it's downright irrational. So it would be foolhardy to buy a stock just because others are buying it.
Still, it's wise to listen to the collective wisdom of the investment community. And the whole point of a stock screen is to isolate securities that might be worth a look. If nothing else, we know that the stocks in this table aren't just high yielders, but are also among the market's best this year in terms of total returns.
To me, that's a sign of healthy (or at least strengthening) operating fundamentals. All things equal, that's a great place to start when looking for sustainable dividends.
A Standout From The Group
One of the strongest right now is New Residential (NYSE: NRZ). The company services large pools of residential mortgages, retaining a portion of the interest (typically 25 to 50 basis points) collected on the principal balance. It recently expanded its portfolio by paying $400 million for the rights to service mortgages with a total unpaid principal balance (UPB) of $116 billion. The company also collects interest on a portfolio of various mortgage-related securities.
One of the strongest right now is New Residential (NYSE: NRZ). The company services large pools of residential mortgages, retaining a portion of the interest (typically 25 to 50 basis points) collected on the principal balance. It recently expanded its portfolio by paying $400 million for the rights to service mortgages with a total unpaid principal balance (UPB) of $116 billion. The company also collects interest on a portfolio of various mortgage-related securities.
From inception in 2013 through the end of last fiscal year, New Residential returned over $1.3 billion in dividends. Unlike many 10% yielders that struggle just to maintain dividends, NRZ has been able to increase payouts twice this year… from $0.46 to $0.48 per share in the first quarter and then from $0.48 to $0.50 last quarter.
You can do that when you take in record high earnings and generate a lofty return on equity (ROE) of 17%.With quarterly core earnings of $1.03 per share, the company is paying out less than half of its profits.
This industry naturally involves some interest rate sensitivity. But the modest payout ratio (on a growing distribution no less) makes NRZ a strong portfolio candidate. I'm adding it to my watch list.
There's Plenty More Where That Came From
The goal of this stock screen is to identify stocks that are worthy of a closer look. While they meet certain criteria, the companies in the table above haven't been fully researched and shouldn't necessarily be considered portfolio recommendations. If I find a real gem within these screens, a stock that can actually maintain this level of yield through the years to come, my High-Yield Investing subscribers will be the ones who benefit the most.
The goal of this stock screen is to identify stocks that are worthy of a closer look. While they meet certain criteria, the companies in the table above haven't been fully researched and shouldn't necessarily be considered portfolio recommendations. If I find a real gem within these screens, a stock that can actually maintain this level of yield through the years to come, my High-Yield Investing subscribers will be the ones who benefit the most.
Source: https://goo.gl/ffnFoU
No comments:
Post a Comment