Stocks with high dividend yields are particularly appealing for long term buy & hold, because the cash payout by itself provides a good margin of safety for the investment. When investing in mature companies, reinvest dividend is a commonly adopted strategy to increase long term returns. If timed correctly, investors can enjoy both share price increase as well as dividend payout.
Some companies may appear to pay a nice dividend, but that may not be sustainable based on the company's financial health. Investors should be cautious about the following companies.
AllianceBernstein Holding L.P. (AB) is an asset management company. It has a market cap of $1.28 billion. This company pays a handsome dividend of 8.60%. AllianceBernstein provides investment management and related services in the United States and internationally. It offers institutional services, including separately-managed accounts, sub-advisory relationships, structured products, collective investment trusts, mutual funds, hedge funds, and other investment vehicles to unaffiliated corporate and public employee pension funds, endowment funds, domestic and foreign institutions, and governments. AllianceBernstein Holding L.P. operates as a subsidiary of AXA. Its price is only around 4.94% off its 52-week low. While the stock appears it might have bottomed, investors should proceed with caution. The PEG ratio is way above one, something to be careful about. The recent trading volume is about average. AllianceBernstein has experienced double digits decline in both revenue and profits recently. Despite insider purchase, I'm not very positive about the company's prospect.
Arlington Asset Investment Corp. (AI) is a regional investment brokerage. It has a market cap of $221.79 million. The dividend is generous at 15.20%. Arlington Asset Investment acquires mortgage-related and other assets. The company acquires on a leveraged basis residential mortgage-backed securities (MBS) that are issued by the United States (U.S.) government agency, or guaranteed as to principal and interest by U.S. government agencies, or U.S. government-sponsored entities. Its price is not very close to either 52-week high or low. Stable trading volume suggests a relatively calm market. Arlington Asset Investment's revenue declined 34% while earnings dropped 46% during the most recent quarter.
Charm Communications Inc. (CHRM) is an advertising agency in China. It has a market cap of $273.48 million. The dividend is generous at 17.40%. The company offers a range of advertising agency services from planning and managing the advertising campaigns to creating and placing the advertisements. It places advertisements for its clients on a range of television channels, including CCTV, and satellite and regional television channels, and on other media platforms, including Internet and out-of-home media. The company also engages in media investment management through identifying, securing, and selling of advertising resources. In addition, it provides branding and identity services, including design, development, and production of advertisements; and marketing consulting services. Its price is not very close to either 52-week high or low. The low PEG ratio of 0.26 can be deceiving when the company had a 46% decline in revenue and 93% decrease in earnings. Stable trading volume suggests a relatively calm market.
Chimera Investment Corporation (CIM) is a diversified REIT. It has a market cap of $2.59 billion. This company pays out a nice dividend of 16.10%. Chimera Investment invests in residential mortgage-backed securities (RMBS), residential mortgage loans, commercial mortgage loans, real estate-related securities, and other asset classes. Its price is near the bottom, at around 5.88% off its 52-week low. The PEG ratio is way above one, something to be cautious about. Stable trading volume suggests a relatively calm market. Chimera's revenue declined 38% and earnings decreased by 43% recently. Given its operating cash flow of $409 million and debt of $6.20 billion, liquidity can become a problem.
Hugoton Royalty Trust (HGT) is an oil & gas drilling & exploration company. It has a market cap of $290.00 million. This company pays a handsome dividend of 8.90%. Hugoton Royalty Trust holds an 80% net profits interests in certain natural gas producing working interest properties of XTO Energy Inc. XTO Energy Inc. holds working interests in the Hugoton area that covers Texas, Oklahoma, and Kansas; the Anadarko Basin of western Oklahoma; and the Green River Basin located in southwestern Wyoming. Hugoton Royalty Its price is not very close to either 52-week high or low. Hugoton's revenue and earnings have both declined by more than 20% lately. The trading volume has been consolidating recently. Since it's a holding company and XTO Energy is a private company, it's almost impossible to gauge the risk in the dividend payout.
Newcastle Investment Corp. (NCT) is a diversified REIT. It has a market cap of $776.11 million. This company pays a handsome dividend of 12.60%. Newcastle Investment invests in and manages a portfolio consisting primarily of real estate securities. The company's portfolio of real estate securities includes commercial mortgage backed securities, senior unsecured debt issued by property REITs, real estate related asset backed securities, and agency residential mortgage backed securities. Its price is not very close to either 52-week high or low. The PEG ratio is way above one, something to be cautious about. Average trading volume is observed lately. Its revenue and earnings both experienced sizable decline of 42% and 33% lately.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.