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Companies that pay high-yielding dividends can be good investments, as they provide you with an income stream while still allowing you to take advantage of growth in the stock price. This can be extremely useful if you are able to re-invest the dividends in the stock, as it allows you to dollar cost average your investment and access the power of compounding. Over time, this will allow you to maximize the returns on your investment.

However, the dividend trap also needs to be considered. This occurs when you invest in a stock as it is paying a solid dividend yield but the stocks fundamentals do support the payment of such a high yield, thus company is required to either reduce the dividend or cease paying it all together. Companies with a high dividend yield may be good investments if the rest of their fundamentals are also strong, but when one metric looks good and the rest are questionable it is a sign that there may be problems with the company. In this article I will analyze five stocks that are currently paying dividends with yields close to or above 5%, to not only determine if they are sound investments from a yield perspective but also whether they have the ability to sustain the dividend yield and rise in value. These five stocks were chosen because they represent contrarian plays. Each one represents a relative value when compared to industry peers and all are selling at a discount to fair value. However one stock in the analysis, Canadian Imperial Bank (NYSE:CM), is still a hold.

Terra Nitrogen Company (NYSE:TNH)

Terra Nitrogen Company has a market cap of $3.34 billion and a price to earnings ratio of 7.51. Its 52 week trading range is $96.08 to $199.50. At the time of writing, it is trading at around $178.50. It reported third quarter earnings 2011 of $203.30 million, an increase from second quarter earnings of $198.60 million. Third quarter net income was $128.40 million, a slight reduction from second quarter net income of $128.90 million. It has quarterly revenue growth of 49.50%, a return on equity of 197.82% and pays a dividend with a yield of 8.50%.

One of Terra Nitrogen Company closest competitors is CF Industries Holdings Inc (NYSE:CF). CF Industries is trading at around $171.50 and has a market cap of $11.38 billion. It has a price to earnings ratio of 9.43, quarterly revenue growth of 53.10% and a return on equity of 32.82%. It pays a dividend with a yield of 1.00%. Based on these key performance indicators, it is underperforming Terra Nitrogen.

Terra Nitrogen's third quarter 2011 balance sheet showed cash of $181.90 million, an increase from second quarter cash of $173.90 million. It has quarterly revenue growth of 49.50%, versus an industry average of 25.70%, and a return on equity of 197.82%, versus an industry average of 17.90%. This indicates that it is outperforming many of its competitors.

The earnings outlook for the Agricultural Chemicals industry is increasingly positive despite poor earnings growth over the years since the global financial crisis. This can be attributed to the ongoing growth of the Chinese and Indian economies and the demand for fertilizers to be used in high intensity agriculture as the amount of arable land, available worldwide for food production, decreases. The International Fertilizer Industry Association is predicting that in 2012, nutrient application rates would fully recover to levels seen prior to the economic crisis of 2008, thus leading to sustained demand for fertilizer.

When the positive industry outlook is considered in conjunction with Terra Nitrogen's increased cash holdings, strong performance indicators and attractive dividend yield there is tremendous upside for the company. On this basis I rate the company as a buy.

Westpac Banking Corporation (NYSE:WBK)

Westpac Banking Corporation has a market cap of $65.18 billion and a price to earnings ratio of 9.57. For a 52-week period its trading range has been $89.41 to $138.57. It is currently trading at around $108. The company reported first half earnings for 2011 as $19.39 billion, an increase from first half earnings of $18.75 billion. Second half net income was $3.03 billion, a decrease from first half net income of $3.96 billion. It has quarterly revenue growth of 3.70%, a return on equity of 16.82% and pays a dividend with a yield of 14.30%.

One of Westpac's closest competitors is Australia & New Zealand Banking Group Limited (OTCPK:ANZBY). Australia & New Zealand Banking Group currently trades at around $21.50 and has a market cap of $55.82 billion. It has a quarterly revenue growth rate of -0.10%, a return on equity of 14.88% and doesn't pay a dividend. Based on these performance indicators Westpac is outperforming ANZ.

Westpac's cash position has improved, its second half 2011 balance sheet showed $24.81 billion in cash, an increase from $15.04 billion in the first quarter. Its quarterly revenue growth of 3.70% is less than the industry average of 39.30%, and its return on equity of 16.82% is greater than the industry average of 7.80%. These indicators show that Westpac has less earnings growth potential than most of its competitors but has a stronger return on equity.

The earnings outlook for Australian Banks is quite positive. Moody's have said this is primarily due to the relatively sound prospects for the Australian economy and signs that bad debt provisioning has peaked. In addition, the major Australian Banks were not carrying the same degree of toxic debt and collateralized debt instruments that many of the U.S. banks held as a result of tighter prudential regulation. Accordingly they have weathered the ensuing economic uncertainty in a far better state than many of their global peers. As Moody's recently stated, Australia's banks have emerged from the GFC in a strong position compared to many developed markets and as a consequence, the majority of Australian financial institution ratings have not changed and the system remains one of the highest rated globally.

BP Prudhoe Bay Royalty Trust (NYSE:BPT)

BP Prudhoe Bay Royalty Trust has a market cap of $2.38 billion and has a price to earnings ratio of 12.49. For a 52-week period its trading range has been $96.18 to $131.49. It is currently trading at around $111. The company reported third quarter earnings 2011 as $56.75 million, an increase from second quarter earnings of $51.73 million. Third quarter net income was $56.48 million, an increase from second quarter net income of $51.17 million. The company is achieving quarterly revenue growth of 9.70%, a return on equity of 18,949.95%, and pays a dividend with a yield of 7.10%.

One of BP Prudhoe Bay Royalty Trust's closest competitors is San Juan Basin Royalty Trust (NYSE:SJT). San Juan Basin Royalty Trust is currently trading at around $25. It has a market cap of $1.16 billion and a price to earnings ratio of 17.62. It has quarterly revenue growth of -30.70%, a return on equity of 441.38%, and pays a dividend with a yield of 5.90%. Based on these performance indicators it is being outperformed by the BP Prudhoe Royalty Trust.

BP Prudhoe Bay Royalty Trust's cash position is unchanged, the third quarter 2011 balance sheet showed $1.00 million in cash, the same as the second quarter. BP Prudhoe Bay Royalty Trust's quarterly revenue growth of 9.70%, versus the industry average of 15.50%, and a return on equity of 18,949.95%, versus an industry average of 15.30%, indicates it is outperforming many of its competitors.

The overall outlook for the Oil and Gas Refining and Marketing industry is currently quite positive, primarily as demand for resources is being driven by the rapid growth of the Chinese economy. When this is combined with a weak U.S. Dollar, that makes exports more attractive, it bodes well for oil and natural gas demand and producers like BP Prudhoe Bay Royalty Trust.

The BP Prudhoe Bay Royalty Trust's recent increase in net income combined with its strong performance indicators and the positive industry outlook indicates that the company should be able to sustain its attractive dividend yield. This explains the recent investor interest in the company. Accordingly I rate BP Prudhoe Bay Royalty Trust as a buy.

Canadian Imperial Bank of Commerce (CM)

Canadian Imperial Bank of Commerce has a market cap of $28.33 billion and a price to earnings ratio of 11.05. Its 52 week trading range has been $64.92 to $88.76. It is currently trading at around $71. It reported third quarter 2011 earnings of $3.46 billion, a decrease from second quarter earnings of $3.90 billion. Third quarter net income was $825.25 million, a substantial increase from second quarter net income of $692.99 million. Canadian Imperial Bank of Commerce has quarterly revenue growth of 8.90%, a return on equity of 17.23%, and pays a dividend with a yield of 4.90%.

One of Canadian Imperial Bank of Commerce closest competitors is The Bank of Nova Scotia (NYSE:BNS). The Bank of Nova Scotia currently trades at around $51 and has a market cap of $55.42 billion. It has a price to earnings ratio of 11.49, quarterly revenue growth of 15.60%, return on equity of 17.32% and pays a dividend with a yield of 4.00%. Based on these performance indicators it is outperforming the Canadian Imperial Bank of Commerce.

The Canadian Imperial Bank of Commerce's cash position has improved, the third quarter balance sheet showed $2.22 billion in cash, compared to $2.13 billion for the second quarter. Canadian Imperial Bank of Commerce quarterly revenue growth rate of 8.90% is less than the industry average of 20.20%, and its return on equity of 17.23%, is greater than the industry average of 6.70%. This indicates that it is Canadian Imperial Bank of Commerce has lower growth prospects than many of its competitors but it is generating a superior return on equity.

Despite the positive industry outlook and the attractive dividend being paid by the Canadian Imperial Bank of Commerce, I believe there are better investment opportunities. This is due to its decreased net income and less than attractive performance indicators. On this basis I have some concerns as to whether it can continue its current dividend yield. I rate the Canadian Imperial Bank of Commerce as a hold for now.

Sabine Royalty Trust (NYSE:SBR)

Sabine Royalty Trust has a market cap of $971.69 million and a price to earnings ratio of 17.48. Its 52 week trading range is $47.43 to $70.54. It is currently trading at around $67. It reported second quarter earnings 2011of $16.37 million, an increase from first quarter earnings of $13.68 million. Second quarter net income was $15.69 million, an increase from first quarter net income of $13.17 million. Sabine Royalty Trust has quarterly revenue growth of 16.70%, a return on equity of 905.55% and pays a dividend with a yield of 4.10%.

One of Sabine Royalty Trust's closest competitors is the Cross Timbers Royalty Trust (NYSE:CRT). Cross Timbers Royalty Trust currently trades at around $47 and has a market cap of $283.91 million. It has a price to earnings ratio of 15.86, quarterly revenue growth of 26.90% and a return on equity of 124.99%. It pays a dividend with a yield of 6.10%. Both companies are showing healthy performance indicators and paying attractive dividend yields.

Sabine Royalty Trust's second quarter 2011 balance sheet showed cash of $6.41 million, a decrease from first quarter 2011 of $7.11 million. Sabine Royalty Trust's quarterly revenue growth of 16.70%, versus an industry average of 33.10%, and a return on equity of 905.55%, versus an industry average of 11.20%, indicates that it doesn't have the same earnings growth prospects of many of its competitors but is generating a strong return on equity.

The outlook for the Oil and Gas Drilling and Exploration industry is quite positive, with demand being fueled by the ongoing high rate of growth being sustained by the Chinese economy. In addition, as stated earlier, the devalued U.S. Dollar makes exports far more attractive and this bodes well for growth in the price for oil and natural gas.

Sabine Royalty Trust has reported an increase in both net income and cash holdings which means it is expected to maintain its current dividend yield. On this basis combined with the positive industry outlook I rate the company as buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 4 High Yield Stocks To Buy, 1 To Avoid