Taking a Risk - With 20% Yields 16 comments
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During my recent stock research I have come across of a couple of investments that are paying dividends in the neighborhood of 20% per year. In normal times, stocks with these kind of yields are big fat warnings that something is wrong with the security and the high payout cannot be sustained. The current market, however, has punished the good along with the bad without discrimination, and many issues are seriously undervalued. I believe the following two issues have a strong possibility of maintaining and even growing their distributions over time and deserve a look.
The first security that pays 20% is not an individual stock, but is a closed end fund. This issue is the Alpine Global Premier Properties (AWP). AWP holds listed real estate stocks with a global perspective. The emphasis of this fund is international real estate, with over 80% of its holdings outside of the U.S. The portfolio appears to be well diversified with over 130 holdings.
The Alpine closed end funds do not use leverage; all payouts are earned income, not return of capital. The share price of the fund has been eroding on the double hit of global financial crisis and general weakness on most foreign stock markets. At the current pricing and yield, I think is an attractive if very speculative income play. The AWP shares currently trade at a 16% discount to NAV and the monthly dividend provides a 21% yield.
Star Bulk Carriers Corp. (SBLK) went public in December 2007 and currently has a fleet fleet of 12 dry bulk carrier ships. The company aims to have their vessels on 3 to 5 year time charters. Financial goals are to pay a steady, fixed dividend with free cash flow of at least 120% of the dividend. For the first 6 months of 2008 the company earned $1.01 per share against 70¢ paid in dividends. The share price of SBLK is now about half of the December IPO and the current yield is over 19%. This is not surprising as the various Baltic shipping indexes have fallen about 60% over the last 3 months. Shipping rates should recover as China restarts their economy following the Olympic games and need to replenish raw materials.
I view both of these securities as interesting and speculative with lots of upside potential. I plan on including both as half size positions when I start up my new and improved Opportunities Portfolio on 10/1/2008.
Disclosure: In no position in any security listed.
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This article has 16 comments:
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But I would stay away from AWP. If you listened to the last conference call for their fund group (including AOD) management say that they have massive dividends and are not returning capital, but if you dig in a little bit, you'll find that when the underlying companies issue the dividends, their NAVs go way down, it comes out of AWP/AOD's NAVs. , and they never recover. If you want to make the dividend real estate plays here, I would look at the underlying stocks, and not trust the Alpine management on this.
i think you get the point - stay away from bulk carriers during a recession.
Cold Calls with "inside info".
This is always a red flag.
But I agree that shippers and real estate funds are sectors to scrutinize for strong players that will pay dividends , survive , and prove to be bargains in an eventual turnaround in their respective sectors.