Avoiding Value Traps: 4 High Dividend Yield Stocks With Strong Performance
"Safety Through Dividends" -- That's the theme Bloomberg focused on in a morning television segment.
Bloomberg's Dominic Chu reports on investing tips from leading strategists Paul Hickey over at Bespoke Investment Group. He compiled a list of about 15-20 dividend-paying companies across different sectors.
The companies made the list "not just because they yield a lot, also because their technicals and charts are also improving."
Stocks on the list include the following, grouped by industry:
- Staples: Altria, Reynolds America
- Utilities: Duke Energy, Entergy
- Financials: Cincinnati Financial, People's United
A Word to the wise: Understanding dividend yields
Dividends are not future guarantees. Although companies try very hard to avoid cutting their dividends because of the bad publicity, a history of paying a dividend does not mean the company will necessarily continue to do so -- a dip in profitability, and the dividend can be first to go.
Another important note: Higher dividend yields come with their fair share of issues. Of course shareholders prefer larger dividends, but higher dividend yields (i.e., dividend/share price) can indicate that the company is paying unsustainably high dividends, or it can indicate a beaten-down share price. The latter is referred to as a "value trap," where the appearance of value covers up the fact that investors are exiting the stock.
As an investor going into a dividend stock investment, it's vital to perform due diligence first if you want to rely on the dividend income in the future.
Looking for other dividend ideas?
We ran a screen by starting with a universe of high-yield stocks (between 5%-7% for sustainability) that have payout ratios under 50%. Furthermore, all the names below have a quarterly performance greater than 10%.
If you're an income investor, this list might offer a useful starting point. (Click here to access free, interactive tools to analyze these ideas.)
1. SeaCube Container Leasing (NYS: BOX) : Operates as a container leasing company worldwide. Market cap of $288.29M. Dividend yield at 6.71%. Payout ratio at 47.6%. Quarterly performance at 22.64%.
2. Meredith (NYS: MDP) : Engages in magazine publishing and related brand licensing, television broadcasting, integrated marketing, interactive media, and video production businesses in the United States. Market cap of $1.38B. Dividend yield at 5.07%. Payout ratio at 35.58%. Quarterly performance at 25.43%.
3. OneBeacon Insurance Group (NYS: OB) : Provides specialty insurance products and services in the United States. Market cap of $1.41B. Dividend yield at 5.65%. Payout ratio at 27.59%. Quarterly performance at 14.37%.
4. Textainer Group Holdings (NYS: TGH) : Engages in the purchase, ownership, management, leasing, and disposal of intermodal containers worldwide. Market cap of $1.25B. Dividend yield at 5.48%. Payout ratio at 35.73%. Quarterly performance at 15.04%.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Data sourced from Finviz.
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