2 Dividend Stocks With 12% Yields


Dividends can be an investor's best friend -- or worst nightmare. In the seemingly stable sector of utilities, an outsized dividend can be the death of a company. Let's take a look at two of the biggest dividends on offer and see whether they're worth their weight.

Just Energy
Just Energy touts itself as a "market leader in a growing, relatively new industry." The deregulated utility services company has operations in six Canadian provinces and 13 states, with gross margins sales split 60/40, respectively. The company also broke into the U.K. market in Q2 2013, but sales there amount to less than 1%.

The company has managed to grow its customer base from 1.7 million in 2008 to 4.5 million in 2013, doubling its gross margin at the same time. But base EBITDA for this year is back to where it was five years ago , and shares are down 34% in the past year.

Source: Just Energy

But Co-Founder and Executive Chairwoman Rebecca MacDonald noted during the company's latest earnings call that "[i]t would be hard to describe the first quarter of fiscal 2014 as anything but a demonstration of the strength of our business ," and Mr. Market seems to agree. Shares are up 5.6% since Just Energy's last report, compared to a slighter 3.15% gain for the S&P 500.

The company's 11.7% dividend yield is largely a result of its price drop, and Just Energy's P/E currently stands at a puny 6.15. Utilities are far from stable, and Just Energy's deregulated marketplace is exactly where other companies are exiting. With subpar margins, this utility isn't going for the gold, but Just Energy may just be worth more than its current price.

Centrais Electricas Brasileiras
To find the biggest dividend around, we head South to Brazil. Centrais Electricas Brasileiras , or Electrobras, runs the full gambit of utility operations. From generation to transmission to distribution , Electrobras pushes 39,450 MW through 60,000 kilometers of lines to Brazilians, Argentinians, Uruguayans, and Venezuelans . But the company's stock has dropped off 70% in the past five years, and 42% in the past year alone. And unlike other utilities, the reason has little to do with its massive 12.5% dividend yield.

Falling sales aside, Brazil is at odds with electricity. The government maintains a tight grip on power prices, and its demands don't often add up to supply. While over 70% of the country's power comes from hydro (Electobras itself operates 29 dams ), consistently declining water levels have put electricity generation on a downward trend. Duke Energy owns eight of its own Brazil hydro dams, and low reservoir levels knocked 5% off the company's Q1 2013 adjusted EPS.

With tough times ahead for generation and volatile price, Electrobras isn't worth its yield.

Foolish bottom line
If investing were as easy as finding a fat dividend and sitting back, we'd all own shares of Just Energy and Centrais Electricas Brasileiras. But it isn't, and dynamite dividend stocks should be handled with care. Just Energy's had a great past quarter, and its next announcement on November 11 will tell us whether it's here to stay. With too much out of its control, Centrais Electricas Brasileiras simply can't stand up to my long-term investment strategy.

The real dividend dynamite
Dividend stocks can make you rich. It's as simple as that. But if the above companies are any evidence, not all dividend stocks are worth their weight in gold. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

The article 2 Dividend Stocks With 12% Yields originally appeared on Fool.com.

Fool contributor Justin Loiseau has no position in any stocks mentioned. You can follow him on Twitter @TMFJLo and on Motley Fool CAPS @TMFJLo.The Motley Fool has no position in any of the stocks mentioned, either. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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