A number of stocks have been offering massive yields the last year, making for juicy opportunities for income investors. I looked at five stocks, with monster yields of 10% or more, from an income investors perspective to see how well they can continue their yields in the future. Which will hold or raise their yield and which ones are in danger of cutting? Let's see.
Frontier Communications Corp (NYSE:FTR) has a recent stock price around $4.50 near the bottom of its 52-week trading range of $3.81-$9.55 and with a market cap just under $1 billion. Earnings per share stand at $0.15 for a price earnings ratio 28.5. It pays out a quarterly dividend of $0.1875 for an eye popping 16.78% yield. However its payout ratio is an astronomical 498.5 - when 80 is considered a high threshold for a non-REIT stock. Its earnings have plummeted 39.88% the last 12 months. The dividend is completely unsustainable and will almost have to be cut in 2012, if not suspended completely. Income investors should sell this stock and avoid it like a toxic spill.
Meanwhile Nokia Corporation (NYSE:NOK) offers an annualized dividend of $0.55 and a yield of 10.58%, It has a recent price of about $5.00 and a market cap of $3 billion and a 52-week trading range of $4.46-$11.75. Earnings per share stand at a negative -$0.48. Nokia has a case of failing earnings and the payout ratio for its juicy dividend of 10.54% stands at a repugnant 227.1. Nokia has been facing criticism that their products lag its competitors in innovation. As if we didn't need another bearish indicator, a shocking 24% of all outstanding shares are shorted meaning the market judged Nokia's slide will continue. There will be lots of pressure on the board to cut the dividend, sooner rather than later. From an income standpoint, this is no opportunity and stock holders should sell.
The REIT Annaly Capital Management (NYSE:NLY) carries a mouth-watering dividend of $2.28 on an annualized basis which equates to a current yield of 13.51%. It has a recent price near $17.00 inside a narrow 52-week trading range of $14.05-$18.79 $15 billion dollar market cap earnings per share $1.89 price earnings ratio of 8.62. However it has a terrifyingly high price to earnings growth ratio of 3.587. REITs carry a higher payout ratio - by law they must have at least 90% to maintain their tax priveleged status while they can occasionally top over 100%. Annaly, though, has a payout ratio is 147.3. Worse, the payout ratio has been over 100% for two years. Such a situation financially cannot continue, so unless management can suddenly pull the rabbit of new earnings out of a hat, the dividend will have to be cut. Still, their economic model works incredibly well in the current low interest environment. This will be a good one to buy, but to keep a sharp eye on earnings. Should they waver any investor should make a quick escape.
Another mortgage REIT is Chimera Investment Corporation (NYSE:CIM) which sports the second highest dividend yield of this group at a juicy 15.77% off an annualized dividend of $0.44. The recent share price has been a little under $3.00, 52-week trading range of $2.38-$4.34 and it has an earnings per share of $0.50 for a miniscule price to earnings ratio of 5.57. So far so good, but that pesky payout ratio of 110.7 has klaxons sounding. Also Chimera's investment strategy is much more risky than is Annaly's, relying more on non-guaranteed real estate and European investments. Despite the riskiness of its niche, management has shown itself extremely proficient at avoiding pitfalls and nosing out profitable opportunities and in fact I own shares in this stock. The over 100% payout needs to be watched but it is a good choice for a high income play with investors who can tolerate a fair amount of risk. Like Annaly the earnings should also be watched closely.
Our last stock is France Telecom SA (FTE) which sports a semi-annual dividend of $0.83 for a yield of 12.85%. Share price has been near $15 within a 52-week trading range of $14.50-$23.70. Its earnings per share is reported at $1.53 for a reasonable price to earnings ratio of 9.9. It also has an uncomfortably high payout ratio of 117.3 which is a truly unhappy place for a telecom. It has a troubling quick ratio of 0.6, indicating potential cash flow probems looming on the near horizon. This is more troubling because FTE is an old time phone monopoly sluggishly trying to change to a more modern, international telecom, but it is still heavily tied to the French domestic market. The recent downgrade on French Sovereign Bonds is likely to further slow the economy of France. the dividend and share price will come under fire this next year and France Telecom should be avoided by most income investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.