Double-Digit Dividend Yields Revisited

by: Joseph P. Porter

Just over six months ago I wrote a pair of articles identifying fourteen companies that offered double-digit dividend yields ("Have mREITs Got You Down?" and "Still Troubled By mREITs?"). Both articles were written in response to the drop in share value mREITs were realizing at the time due to the third iteration of quantitative easing implemented by the Fed at the beginning of October, 2012. Out of curiosity, and because there seems to be a dearth of "PIC"-quality companies* offering double-digit yields, I thought I would revisit the topic to see what was available. (Asterisked (*) items refer to notes at the end of the article,)

The world has changed somewhat in six months - not completely, but somewhat. I was able to find six companies that both satisfied PIC and offered yields of 10% or greater, but only after relaxing the dividend cover criterion (indeed, by eliminating it, which I disliked having to do).** Among the results are four companies that appeared in the original fourteen; the remaining two*** are new to the list. Four of the companies are located in foreign countries, presenting possible tax issues for investors.****

Why so few? I suspect that the bullish market that has dominated things so far this year has raised the price of many companies, with the result that dividends that were once perhaps marginally double-digit are now single-digit. Moreover, some companies that offered high dividends had to face economic reality and decrease - or even eliminate - their dividends. That there are still some companies to turn to for high yields (without dropping $400+ per share for Apple (NASDAQ:AAPL)) is something for which the investor should be grateful.

The Companies

The companies are ordered according to their dividend cover, as I view this to be an important consideration when dealing with investments based on dividend yield. The companies appearing for the first time on my list are: Transportadora de Gas del Sur S.A. (NYSE:TGS) and Collectors Universe, Inc. (NASDAQ:CLCT). The four companies that occupied the original list are: MIND C.T.I. Ltd. (NASDAQ:MNDO), Great Northern Iron Ore Properties (NYSE:GNI), Navios Maritime Partners L.P. (NYSE:NMM) and Diana Containerships Corp. (NASDAQ:DCIX).

The companies are presented below in order of their dividend cover, from greatest to least. Clicking on the data table will take you to that company's website. Dividends cited are based on the trailing twelve-month - or, ttm - dividends actually paid.

Transportadora is a major provider of natural gas services in Argentina, its services including distribution, transportation and production of liquid natural gas. Currently, it is involved with a project to connect its pipeline to that of Chilean company ENAP. Transportadora also owns a subsidiary, Telcosur, which provides telecommunications services to businesses in Argentina.

As one can see from the data provided, Transportadora's dividend is sustainable on the basis of its current EPS; its status as a "double-digit yield" company, however, vacillates with its share price - I include it because its low price changes as does the price of any company, but the extremely low price of the company means that every change in price has perhaps a disproportionate impact on its yield. Currently, its price is running below $1.80/share, and its dividend is $0.17 (average, varies) paid annually. Their earnings and cash flow, when added to planned expansions, would seem to make the dividend sustainable for the foreseeable future.

MIND is an Israeli-based firm that provides billing and customer care service, as well as call management solutions. MIND is global in the services it offers, with its main headquarters in Israel and offices in Silver Spring, Maryland; Iasi, Romania; and Cirencester, United Kingdom.

Its current price is less than $2.00 per share, with a dividend of $0.24. The company's EPS is almost adequate to cover the dividend, and cash flow is sufficient to insure sustainability, at least for the foreseeable future. Dividends are paid annually.

Great Northern was the subject of an article I published in November, 2012. This company is a trust that manages the leasing of property in Minnesota for the mining of iron ore, and will cease to exist in April, 2015; at that time, the property will revert to ConocoPhillips (NYSE:COP). Unitholders in Great Northern are entitled only to (1) dividends from the royalties paid to Great Northern, and (2) a final payout roughly equal to the current book value of the company ($6.27/share). Conoco has no obligations to Great Northern unitholders, and units essentially cease to exist once the final payout is made.

Currently, shares are selling between $65.00 and $70.00; dividends are paid quarterly and were equal to $14.00 [ttm]. While the company's EPS is slightly less than $14.00, cash flow would seem to indicate the amount is sustainable, although ultimately the payment made is determined by the amount of royalty payments received, and is thereby subject to fluctuation. All dividends will end by April, 2015.

Navios is a master limited partnership operating a dry-bulk shipping company. The company operates out of Greece with a fleet of 21 dry-cargo ships with an average age of just over 6.2 years. The average time remaining on current contracts for the ships is approximately 3 years, meaning a fairly stable income for the immediate future.

Its current price is in the neighborhood of $15.00 per share, and pays $1.77 annually in dividends; payments are made quarterly. While EPS is only $1.61, its current cash flow should make its dividend sustainable for the short term. Longer-term sustainability is dependent upon an improvement in the shipping market.

Collectors Universe provides registration, authentication and grading services for coins and collectibles, such as trading cards and autographs.

Collectors is currently trading in the vicinity of $11.00 per share, and offers a dividend of $0.325 quarterly, for $1.30 per year. While its EPS covers about half of that, cash flow is currently sufficient to make up the difference, but the company and the nature of its business is such that I cannot be comfortable expecting the current yield to continue.

Indeed, if there has been any increase in revenues from their services over the past few years, some of that could be attributed to economic conditions that drive many people to reassess the value of possessions; as the economy improves, these conditions may diminish the need for Collectors' services, resulting in the need to re-evaluate the dividend completely.

What a difference six months makes. Or doesn't make. For Diana Containerships, it depends on how you look at the overall picture. In general, its fundamentals seem better than they were in October, 2012. Moreover, it has added two ships to its fleet, while selling one of its old ships for scrap. On the down side, while its dividend yield is approximately the same, and while it falls short of covering the dividend with EPS, six months ago its cash flow situation was substantially better than it is now.

With cash flow, Diana does barely cover the dividend, but business on this level may not make for a sustainable yield. It remains to be seen if the sale of the Maersk Madrid will replenish its cash flow enough to improve confidence in this company's ability to pay its generous dividend. The ability to sustain dividends is also dependent upon the improvement of the shipping market, as it is for Navios.

That its current price is roughly the same as it was six months ago - in the neighborhood of $5.50 per share - and its dividend remains unchanged at $1.20 leaves one wondering. My colleague, J Mintzmyer, may be correct in his conviction that the $1.20 dividend is far too optimistic and needs to be revised downwards.


Tabular data courtesy The Motley Fool and YCharts; dividends confirmed through Yahoo! Finance.


* "PIC-quality companies" refers to companies that satisfy my PIC. Readers not familiar with PIC, or readers who want to see the current configuration, may view PIC in my Instablog, here.

** My justification for weakening the cover criterion is that, for most of the companies, there is little question that the company is able to pay the dividend between earnings and free cash at hand.

*** There were originally eight companies planned, but due to inaccurate reportage of dividend yields by source websites, two new companies had to be deleted.

**** Investors are advised to consult with a tax expert concerning the obligations on foreign dividends.

Disclosure: I am long DCIX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.