High-yield dividend income can be obtained by selective due diligence. In this article I will address the prospects of companies with high current dividend yields. Often times, a stock with a high yield has high risk. The high-yield investor must avoid the high risk in order to preserve his or her asset base and investing capital.
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American Capital Agency Corp. (AGNC)
American Capital Agency is an agency mortgage real estate investment trust (mREIT).
Agency mREITs make money by borrowing funds at short-term yield curves and investing in higher yielding government sponsored entities (GSE) and mortgage backed securities (MBS). GSE securities are guaranteed by the Federal Government.
The stock has provided 10 consecutive quarters of $1.40 dividends or greater. Last year, the 4th-quarter dividend was announced on December 17. The stock appears to have dividend yield chasers running the stock price up.
The stock has been trading in the $27.75 range for the past few weeks. The recent price is a tad too high to enter a new position, in my view. The stock is trading at a 6% premium to book value per share. American Capital Agency announced its latest secondary at a 6% premium to book value per share.
A healthy stock market does not go up 3% in a day, as was the case on November 30. I would wait for a American Capital Agency price per share retracement if you are trying to collect the dividend. There is likely to be some pull back in price. Long-term holders are fine to hold their position. This is the action I will be taking.
If the current dividend can be maintained, the yield is about 20% per annum. The 30-year Treasury Bond rate did just increase by 10 basis points. The mREITs yield is likely to stay high if the yield curve retains a robust positive yield.
The Gabelli Global Gold, Natural Resources & Income Trust (GGN)
Gabelli Global Gold is a closed-end fund that owns equities in gold and natural resource stocks. Management then sells covered calls against these positions. The net effect is an annual dividend of 11%. This is paid via 14 cent monthly dividends.
The fund is trading at a slight discount to net asset value (NAV). The NAV, found with the symbol XGGNX, is $15.78. The stock closed November 30, at $15.63. Gabelli Global Gold rarely trades below net asset value. I am always looking to purchase securities that yield 11%, paid monthly, and are trading below net asset value.
SandRidge Permian Trust (PER)
SandRidge Permian Trust is a statutory trust created on May 12, 2011, under the Delaware Statutory Trust Act. During August 2011, the Trust completed an initial public offering of its common units. The net proceeds of which were submitted to SandRidge (SD), the operating parent company.
SandRidge Permian Trust (PER) actually beat the SEC expected 3rd-quarter dividend by 10%. The company reported a 3rd-quarter dividend of 72.3 cents per share. As investors can note on the above table, the trust will pay a significant dividend for the next few years. The dividends are based upon hedged hydrocarbon production. If the trust continues to outperform its SEC expectations on dividends, investors will be well rewarded for owning a long position.
U.S. Royalty Trusts have limited lives. My goal, as stated in prior articles, is to reinvest dividends into other income producing assets. I do not want to reinvest the dividends due to the finite life span of a trust. The 15.2% yield for the next few years offers a warm feeling to my personal financial well being.
SandRidge Mississippian Trust (SDT)
SandRidge Mississippian Trust I is a Delaware statutory trust formed in December 2010 to own royalty interests to be conveyed to the trust by SandRidge. The assets include 37 horizontal wells producing from the Mississippian formation in Alfalfa, Garfield, Grant, Major and Woods counties in Oklahoma. In addition, royalty interests in 123 horizontal development wells will be drilled in the Mississippian formation. SandRidge is obligated to drill, or cause to be drilled, the to-be-developed wells from drilling locations by December 31, 2014.
Page B-1 of the SEC S-1A filing displays the anticipated dividends through the March 31, 2031 expiration date.
SandRidge Mississippian Trust's first full quarter significantly beat the SEC S-1A filing. Here are the dividends that have been paid through present date:
Page B-1 shows these expectations for the first two distributions:
The 3rd-quarter dividend was 81.6 cents. The targeted amount was 64.9 cents per share. The initial dividend was $1.068 and represented the January 1 thru May 31 time frame. The amount was fairly close to the expected. The company's first full dividend was very solid and hopefully a sign of continued positive dividend news.
I am reinvesting the dividends in alternative income producing assets. This is a trust with a year 2031 expiration date. The yields will provide investors a currently 12% dividend yield. This, of course, will depend upon your entry point.
I recommend investors take note of the companies they may want to buy. When there is weakness in the stock price per share, then properly take advantage of the opportunity.
Wells Fargo Advantage Global Dividend Opportunity Fund (EOD)
Wells Fargo Advantage Global Dividend Opportunity Fund seeks current income and capital appreciation. The strategy is achieved thru investment in common stocks of global companies, preferred stocks, convertible preferred stocks, convertible debt and selling covered calls.
The latest SEC N-Q filing, effective July 31, shows a portfolio consistent with the fund's goals. The fund is invested primarily in income producing securities. The fund is short index covered call positions to earn income for the quarterly dividend.
The dividend provides a 14.4% annual dividend yield. The discount to net asset value is 8.27%. The fund does not use leverage. The annual operating expenses are a reasonable 1.12%.
I will wait for 15% discount to net asset value. This will be my cornerstone foundation of how to mitigate risk if the markets turn south. The dividend offers a compelling yield. The fund is on my "watch" list.
Chesapeake Granite Wash Trust (CHKR)
Chesapeake Granite Wash Trust is a Delaware, U.S., statutory trust formed by Chesapeake Energy Corporation to own certain royalty interests in oil and natural gas wells in Washita County, Oklahoma. This royalty interest hydrocarbon revenue will derive from the Colony Granite Wash Play within the broader Granite Wash formation of the Anadarko Basin.
The stock has a strong partner in Chesapeake Energy (CHK). The trust has been trading nicely since its initial public offering at $19 per share. The price did dip below the offering price, but is currently trading at $19.93. This represents a 4.8% move from the IPO price.
The key, however, is the dividends. Further information should be provided on December 6, during the conference call.
The Chesapeake Granite Wash Trust investor will receive two dividends for 2011. The dividends, per the above table, should amount to at least $1.22. The $1.22 total dividend represents a simple (non annualized) 6.1% return, based upon a $19.93 stock price, within a short time frame.
MV Oil Trust (MVO)
MV Oil Trust is an older name in the oil trust sector. MV Oil Trust is a statutory trust formed on August 3, 2006, under the Delaware Statutory Trust Act. MV Oil Trust was established to acquire and hold a term net profits interest for the benefit of the Trust unit holders pursuant to a conveyance from MV Partners to the Trust. The assets are located in Kansas and Colorado. The trust's oil and gas properties include approximately 1,000 producing oil and gas wells.
Investors should be aware that the oil production is currently unhedged. The trust is yielding over 10% per year. There is a risk of decreasing energy prices, which would reduce the net dividends to unit holders.
I pay more attention to the downside, versus the upside, when analyzing high-yield dividend stocks. The investor, in my opinion, is better off saying "no" if high risk exists. There are plenty of opportunities everyday in the market place. The essential issues are timing the entry point and recognizing the known risks.
Investors can find "U.S. Royalty Trust" information at this link: U.S. Statutory Trusts Information Page.