8 High-Yielding Stocks for Income Investors
We all know the baby boomers are going to begin entering retirement. While there are many different styles of investing, I believe that when one enters the retirement stage of life, income investing is by far the best. Investing in companies and bonds that offer high dividend yields can prevent one from being forced to start living off the capital in the portfolio. Nothing would suck more than outliving your portfolio and winding up a 85+ year old with no money and a big burden to your children or your country.
Finding high dividend yields will probably become increasingly hard. Why? As the boomer’s enter retirement they will most likely start searching for high yielding investments in large numbers so they can afford retirement. As the demand for these high dividend yielding investments increases, so too will the price of those investments, meaning that dividend yields may decrease.
There is a wild card… perhaps many CEOs will realize that investor’s are looking for companies with high dividends and maybe more companies will begin offering dividends so they can lure investment capital. I hope this happens and I’m sure it will to a degree, but I don’t think it will happen in large numbers.
I do like to invest for growth in a companies stock price, but I also want to be paid as an owner. Why should anyone own a company? To make money! Too many public companies fail to issue dividends, instead telling their shareholders that they are going to put all that money back to work to grow the company and it’s share price. This probably makes it easier for CEOs and executives to grow the bottom line and get those big bonuses. But, as an owner, and while I LOVE growth in the stock price, I still want to be paid a portion of earnings. It doesn’t have to be a high portion, but I should be paid something.
There are benefits to increasing the stock price as opposed to issuing dividends. Obviously the company will ultimately be in a better financial position if it isn’t giving away its earnings. It will have more options to grow and compete. Heck, as long as you don’t sell the stock frequently, the paper gains over a period of 10+ years can all grow tax free. Yes, you will pay taxes when you sell the stock at a gain, but as long as you don’t sell it, you pay nothing. Dividends are taxable, but at a lower rate (at least in my country). So while I do like and understand why many companies don’t offer dividends, I still believe a company that is profitable and has a healthy balance sheet should give at least a SMALL dividend.
8 High Yielding U.S. Stocks
Harvest Energy Trust (HTE) 15.20% - Oil & Gas
GSC Investment Corp (GNV) 16.30% - Asset Management
Oceanfreight Inc. (OCNF) 16.20% - Shipping
Penn West Energy Trust (PWE) 15.00% - Oil & Gas
Pengrowth Energy Trust (PGH) 14.80% - Oil & Gas
Babcock & Brown Air (FLY) 14.20% - Leasing Aircraft (long term leases)
Omega Navigation (ONAV) 14.10% - Shipping
Terra Nitrogen (TNH) 14.10% - Agricultural Fertilizers
There is a common theme when looking through the companies that offer high yields. Almost all are in the Real Estate Investment Trust sector or are Oil & Gas Income Trusts (Canadian). Just remember that Canadian Income Trusts (with the exception of REITs) will have to change structure within the next several years and they will be taxed. Another common theme is the sheer number of shipping companies that offer high yields. Shipping has been around FOREVER, and unless air freight were to significantly decrease, it looks like it will be around for a while longer.
Also remember, you don’t have to go with a high yielding stock. There are plenty of stable companies that offer steady dividends like Procter & Gamble (PG) 2.10% which has been paying dividends for over a hundred years.
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This article has 51 comments:
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OneRichOne
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19 Comments
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Mar 20 08:46 AM-
Philip Obal
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72 Comments
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Mar 20 10:54 AMGreat article BTW, but you failed to list is a US oil trust called "TEL Offshore Trust".
TEL Offshore Trust's (Trust) principal asset consists of a 99.99% interest in the TEL Offshore Trust Partnership (Partnership). Chevron U.S.A., Inc. (Chevron) owns the remaining .01% interest in the Partnership. The Partnership owns an overriding royalty interest (Royalty), equivalent to a 25% net profits interest, in certain oil and gas properties (the Royalty Properties) located offshore Louisiana.
Around March 26th (a week away) - they will announce another quarterly dividend, which should be .80 to .85 IMHO. The yield would be roughly 16.8 % EXTREMELY NICE YIELD for a US based (not Canadian) oil and gas trust. Almost 17% with the new yield at 19.30 / share price.
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djbtz
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2 Comments
Mar 20 11:09 AM-
Tk77Mann
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13 Comments
Mar 20 11:14 AM-
OneRichOne
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19 Comments
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Mar 20 11:33 AM-
Dividend Growth Investor
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157 Comments
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Mar 20 12:03 PMHave you considered income deposit securities?
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Andrew E.
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1 Comment
Mar 20 02:29 PM-
OneRichOne
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19 Comments
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Mar 20 04:01 PM"If the Schedule K-1 reports that the account is for an IRA, the amounts are not reportable on your individual income tax return. It is required by federal tax law that each unitholder receives a Schedule K-1."
Check their website.
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SaveTheRupublic
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20 Comments
Mar 20 04:33 PMI need some help. I'm 29. I've been investing in stocks for a little over a year and to say I've made a few mistakes would be an understatement. Suggestions on how I can improve my portfolio are greatly appreaciated as..... I am a moron.
BRK.B 26.94%
GOOG 4.01%
KO 3.04%
HD 3.6%
PBR 8.1% (Great!)
ETFC 5.21% (Killing me!!!)
PTR 3.78%
GE 3.49%
AAPL 3.29%
XOM 3.19%
TOT 3.14%
STO 3.14%
JNJ 3.08%
E 3.07%
MRO 2.91%
BP 2.81%
COP 2.81%
CVX 2.61%
VMW 2.37% (I use VMWare everyday. Why can't everyone else?)
SNP 1.54% (Should I add some more?)
ETF's......
EEM 2%
FXI 2%
IRA.... (Down 9%)
TRBCX - Blue chip growth fund 25%
JAGIX - Janus Growth and income 25%
PRMTX - Media and telecommunication 25%
TRRJX - Retiremnt 2035 25%
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nyka
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156 Comments
Mar 20 04:48 PMExample no. 2 -- grow the company and it's share price. Clue -- it's means IT IS It's questionable if you want your message to read AND IT IS SHARE PRICE.
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Turnipseed
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10 Comments
Mar 20 05:10 PM-
User 166382
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1 Comment
Mar 20 06:43 PMI have had K-1s and did not find it very difficult to transpose the numbers to the 1040. Don't let this dissuade you.
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Michael Levy
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16 Comments
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Mar 20 07:06 PMRemember ... Reality is still all around you even when you stop believing in it.
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Trims
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2 Comments
Mar 20 08:22 PMwww.etfconnect.com/sel...
funds, since they are a little basket of stocks in a sector they are less risky for going bk at least. I now have 40 of them such as Pimco, Cowen & Steers, Nuveen, Nicholas applegate, etc. You can research them at this site. (above)
I also have limited my investment in any one stock to $5k or $6k because if it goes under I'm not wiped out. The one exception to that rule is Amerigas (APU) which I know is owned 44% by our local UGI gas company. It pays about 7.5% dividend and I've had it about 10 years.
Verna aka Trims
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Robert Nabloid
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252 Comments
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Mar 20 11:07 PMBTW, those 8 stocks aren't actual recommendations - just a quick glance to show readers that high yielding stocks do exist. I wouldn't personally want to own some of those since there are better ones out there.
I forgot to write that I don't blindly chase yields. I always check to see a stable company with profits, growth and steady dividend increases and a healthy balance sheet (I hate a company with too much debt). I've stayed away from the mortgage income trusts. I do like some REITs (especially some Canadian ones).
And no, there will be no more "halloween canroy news" that can drop them by 30%, because they are already slated for destruction and that is factored into the price. Destroying the Income Trust Industry was the worst case scenario and it occured and the result was a 30% drop. Alberta just raised the royalty rates on oil and gas and won't be raising it any further (though that was bad news and set prices back a bit too - seems like a few years of bad news for the Canadian side of things if you count the USD being so weak and the fact that Oil is quoted in USD... Sure oil went up, but not by much in CND$).
We don't know what many of these Income Trust Companies will look like when they switch to a traditional corporate structure - will they continue their high dividends? Or will some switch strategies and issue smaller dividends? We don't know and that means there is an element of risk with many of the Canadian Income Trusts (except REITs).
Also note that I did not know the U.S. Government treats PGH like a partnership. I guess I'm lucky we don't.
Invest in what you know and feel comfortable with.
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YR Dog
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20 Comments
Mar 21 01:23 AM-
Vancan
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19 Comments
Mar 21 04:35 AM-
Vancan
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19 Comments
Mar 21 05:20 AM-
OneRichOne
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19 Comments
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Mar 21 05:50 AM-
notsosmart
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1276 Comments
Mar 21 11:08 AM-
Philip Obal
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72 Comments
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Mar 22 10:34 AMAssuming that dividends start paying .80 per quarter on a regular basis - this should be trading at 26 to 32 a share. Currently at 20.11 a share, but will climb to 26 during the next 5 to 7 days.
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p2pvoice
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11 Comments
Mar 22 01:37 PMComment by "I'm a moron" is indicative of this. Buying GOOG for dividends??? That's the first time I have heard of this.
Chasing only dividends is hazardous to your portfolio. In many cases, especially in a bear market such as now, the dividend yields look tempting only because the share prices have tumbled and *NOT* necessarily because those are GOOD companies paying GOOD dividends.
Some commentors have echoed this reality in this thread.
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E Nuff Sed
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148 Comments
Mar 22 03:16 PMMany of the energy related companies (esp canadian trusts) have declining reserves i.e. they are pumping out their assets and monetizing them. Sooner of later they will run out and share prices will decline to zero.
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d_teller
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101 Comments
Mar 23 12:21 AMWith regard to K-1's from Publicly Traded partnerships: the item that can disqualify (render taxable) an IRA or Roth is the UBTI >$1000.00 indicated in section 20 of the K-1, and shown by the letter "V". UBTI is Unrelated-to-Business Taxable Income.
Most PTP's of exploration, mining, pipeline, etc. companies do not generate UBTI, but some with complicated financial changes may.
Some ETF's, particularly DBA and DBC are one's I know, send the K-1's from the DeutscheBank index maker, and not from the brokerage. They tend to come a bit later than 1099's, usually by Feb 15-Mar.10th. And some have neat little diagrams showing where to put the data from the K-1 on the tax forms.
In addition, you should get a good tax attorney's assessment of Frontline's (FRO) claim that it may "hypothecate"... common shares , (it's buried in their 2007 proxy statement in boldface italics)...this can disqualify the IRA, because it says the company can borrow against your shares.
Now all of these are related to tax-sheltered accts, where divs in the form of carry-through losses, and return of capital, have no value, because the minimum required distributions from a typical IRA are taxed at a marginal rate...there's no benefit from a "lower" cap gains rate. In addition, absent some other considerations, a return of capital is an attempt to manage a dividend stream, which generally causes depreciation of the share price, although it has obvious benefits to majority shareholders and company officers.
Finally, with regard to the CanRoys conversion to PTP, or regular corp'ns., with reduction of dividends: some have income from U.S. operations, and won't be affected by the Canadian Tax (and if they're in a sheltered acct, won't be affected by the idiot proposal from Mass. to tax the income streams as "non-qualified)&q...
Of course, you don't benefit from the tax credit vs. income taxes due our IRS, and it's impossible to get a refund of those Canadian taxes (15%) if the securities are in a U.S. Tax-sheltered acct.
The second thing to check is at the company's home site:what are their plans for >2011...do they have a 10-20 year stream of depreciation claims to mitigate the Canadian Tax on corporations. Is their income tied to commodity pricing? (up with nat. gas prices, for e.g.). Are their own production costs rising with energy costs (Oil Sands and Shale oil companies)? Pravchaw's comment concerning development of reserves is very pertinent for resource intensive companies. But there are many CanRoys, and some are timber companies that "grow" their resources, others are carriers, like Pembina Pipeline, others sell ice, or water heaters, etc.
For the newcomers to CanRoys, they're listed on the Toronto Stock Exchange (TSX) (by the company's name and the symbol "xxx.UN", and you can get the info. concerning taxation plans at their homepages, but not necessarily by looking up the NASDAQ or OTC,or Pink Sheet symbol. (Arc Energy = AET.UN on the TSX, & AETUF on the NASDAQ Pink Sheets: Vermillion Energy= VET.UN & VETMF, etc.)
I thank the posters "OneRichOne" and "I'm a moron" (IMHO, no, you're not; at 29 you can hold securities of companies that pay increasing dividends {e.g., PG mentioned by Vancan} and have a decent retirement. But I'm an Oldman, and taking MRD's), for the listings and some suggestions.
Finally an observation for the original poster, Mr. Nabloid: I believe that the MRD of 1/14 (7%) seems high. The uniform table requires <4% (1/27.4 for those turning 70 between Jan and July1; 1/26.5 for those born in the latter half of the year.) Also, I hold PGH, and it's NOT a limited partnership in my listings, its dividends and foreign tax-paid is reported on the 1099's...and I haven't received a K-1 for PennGrowth Energy (PGH) for the past 8 years.
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tangoing
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1 Comment
Mar 24 11:30 AM-
Mike Stathis
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35 Comments
Mar 24 01:57 PMPFE and BMY have been beaten down for years. And in my opinion, there is much more upside over the next several years than downside. They are currently yielding upwards of 6%. At the same time, they are solid at these valuations. PFE has an excellent 40-year history of dividend growth, while BMY is not quite as good, but still impressive. The main risk with the pharmas (and with all other traditional asset classes) is market risk or the risk of a market decline. Sure, there are some issues such as waning pipelines, but this has already been factored into these stocks. Thus, I feel the valuations present some nice appreciation potential once Medicare Part D kicks in with retiring boomers.
The second point I'd like to mention it's not that easy to find high dividend yield stocks that are safe. While the author makes note of companies that have and will always be around, "being around" as investment criteria is a dangerously low benchmark. A stock can cut its dividend by 50% or even 80% and the stock price could get hammered. This would not only devastate the expected dividend income but would also pummel the account value. In fact this is exactly what happened to some oil trusts a couple of years ago. Although we can never know what is ahead, one thing investors should do is look for increasing dividends during rising oil prices.
When researching for dividend-bearing stocks, first you should check the dividend growth. Next, you should consider are the merits of the industry and particular stock under consideration. I would consider the shipping stocks to be very risky and would not purchase them personally. Aircraft leasing is also quite risky unless you have been an investor for a long time and have a low cost basis. Understand that these companies, by necessity are involved with the financial system and could have some problems down the road.
Regardless how nice a stock may look, one should be extremely careful with any financial firm paying 15% dividends. Ask why the DY is so high. Is it due to the stock price getting sacked while the dividend has remained? Or is the dividend just that high? Regardless, I'd stay away from financials for a while, especially if you are seeking dividends.
I do think the oil trusts offer the best risk-reward. But I certainly would not overbuy. Regardless of your income needs, you should still have some stocks offering capital appreciation. Oil prices are volatile but oil trusts don't share the same volatility as the other types of oil stocks due to the high dividends. However, these trusts have thin trading volumes, making liquidity a potential issue. All this said, I think the oil trusts are excellent. Just don't buy too much because they are like any other stock - eventually they will have problems.
When interest rates soar (I expect this in a couple of years) stocks with high DY won't be as attractive to investors and this alone could knock the price down.
Always remember, if you think you can easily find stocks paying 15% DY that don't have high risk, you are wrong. A 15% investment return is outstanding, but you should never expect that to be sustainable over a long period. While it can and does happen, it defies market performance, as the average annual returns over 70-80 years have been 8% (capital appreciation + dividends). It simply defies the risk-reward dynamics within the market as well as the law of supply-demand which dictates stock prices. If stocks with 15% DY were viewed as low risk by investors, they would be purchased in masses, driving the share price up and the DY down. But this has not happened (not yet anyway). So be careful because the market is saying that these stocks are very risky. The market is not always right in the short-term, but over a longer timeframe it is. And if you are dealing with a short investment horizon such as that during retirement, you'll want to be careful.
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djbtz
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2 Comments
Mar 25 10:57 AM-
Skoodog
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3 Comments
Mar 26 01:42 PMCEFs have been talked about too - I played in that year before last with Boulder Income Fund (BIF) and actually made a good jump - however their "dividends" were coming out of their share value, not revenues.
I'm about to embark on a plan to spread my money across several large-cap funds paying out modest quarterly dividends and then reinvesting those dividends to take advantage of compound interest in a Roth. Diversification is key to capture average gains and below-average losses and just letting your money work for you.
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Wm. D. Roden
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2 Comments
Mar 26 04:14 PM-
Bhakta
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117 Comments
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Mar 27 11:19 AM