Should you have high dividend-yielding stocks in your investing portfolio? Issues in Greece have turned the markets red and show how vulnerable the global stock market is-and by extension, your retirement portfolio.
To help stomach ongoing market volatility, many investors like to include a number of solid dividend-yielding stocks in their portfolio. Whether the markets are going up, down, or sideways, dividends can provide you with a steady income stream.
That said, there is a risk/reward trade-off when it comes to dividend-yielding stocks; the higher the yield, the greater the risk. For example, Wal-Mart Stores Inc. (NYSE/WMT) is an industry giant that provides capital appreciation and an annual dividend yield of 2.7%. Wal-Mart isn’t a risky stock to invest in per se because it’s everywhere, yet isn’t going anywhere.
Then there are stocks that provide dividends above 10%, 15%, and even 20%. Those are high dividend yields indeed. High dividend yields may be attractive in a near-zero interest environment, but it’s important to understand what you’re investing in and what the risks are.
If you are interested in high dividend-yielding stocks, you may want to do some further research into the following three companies.
Top 3 High-Yield Dividend Stocks
Alon USA Partners, LP (NYSE/ALDW)
Alon USA Partners, LP (NYSE/ALDW) is a Master Limited Partnership (MLP) that refines and markets petroleum products. The company’s crude oil refinery in Big Spring, Texas has a crude oil throughput capacity of 73,000 barrels per day. (Source: alonpartners.com, June 30, 2015.)
Alon Partners refines crude oil into finished products, which are marketed primarily in West Texas, Central Texas, Oklahoma, New Mexico, and Arizona through its wholesale distribution network to both Alon Energy’s retail convenience stores and other third-party distributors.
Alon USA provides a big 13.3% dividend yield. The company’s share price has also been up more than 75% since the beginning of the year.
As a MLP, Alon USA operates differently than a normal dividend-yielding stock. First, MLPs are energy infrastructure companies that primarily transport and store oil, natural gas, and other refined products (much like a REIT is concerned with real estate or mutual funds with stocks).
There are a small number of MLPs, like Alon USA Partners, that primarily operate refineries instead.
A pipeline MLP profits from the transportation and storage of oil and natural gas. It doesn’t matter if a barrel of oil sells for $60.00 or $100.00, pipeline MLPs receive an earned, steady fee. A refinery MLP like Alon USA Partners, LP profits from the difference between crude oil and refined products. The bigger the spread between the crude oil price and refined products, the more profitable the refineries are. Conversely, the narrower the spread, the less profitable a refinery MLP is.
Chesapeake Granite Wash Trust (NYSE/CHKR)
Chesapeake Granite Wash Trust (NYSE/CHKR) currently provides an annual dividend of 21.2% and is trading up roughly 57.0% year-to-date.
The company owns royalty interests in the oil and natural gas-rich Colony Granite Wash play in Washita County in the Anadarko Basin of western Oklahoma. (Source: chkgranitewashtrust.com, June 30, 2015.)
These royalty interests entitle the trust to receive (after the deduction of post-production expenses and taxes) 90% of the proceeds attributable to Chesapeake Energy Corporation’s net revenue interest in the sale of production from 69 horizontal producing wells. Moreover, 50% of the proceeds are attributable to Chesapeake’s net revenue interest in the sale of production from 118 horizontal development wells to be drilled by Chesapeake Energy Corporation within a defined Area of Mutual Interest (AMI).
With 10-year treasuries providing just 2.3%, 30-year treasuries at 3.1%, and many thinking the stock market is seriously overvalued, you can see why a royalty trust that provides a reliable double-digit dividend and strong capital appreciation is attractive to investors.
Chesapeake Granite Wash Trust might trade like a stock, but it isn’t one. Unlike a regular oil and gas energy play, Chesapeake Granite Wash Trust is a trust. And by law, it has to pay out virtually of its earnings in dividends.
Further, when you buy a stock, you own a piece of a company. When you purchase a unit of Chesapeake Granite Wash Trust, you are buying the output of the oil well. As a result, the cash distribution will fluctuate based on the amount of oil and natural gas produced as well as market prices.
Mercury Systems, Inc. (NASDAQ/MRCY)
Mercury Systems, Inc. (NASDAQ/MRCY) is a leading high-tech commercial provider of real-time digital signal processing systems for the homeland security, military and aerospace, and telecommunications markets. Its military systems process radar, sonar, and other signals. It also makes specialized electronics used in semiconductor wafer inspection and airport baggage screeners. (Source: mrcy.com, June 30, 2015.)
The company’s products and solutions have been deployed in more than 300 programs with over 25 different defense-prime contractors.
Mercury provides an annual dividend of 16.96% ($2.47). Its share price is up nearly five percent year-to-date.
In late April, Mercury announced that third-quarter revenue increased 11.6% year-over-year to $6.2 million. Net income was $4.7 million, or $0.14 per share compared to a loss of $0.3 million, or $0.01 per share last year. (Source: mrcy.com, June 30, 2015.)
Revenues for the full fiscal year 2015 are projected to be in the range of $233 to $235 million, representing 12% to 13% revenue growth relative to fiscal 2014. GAAP income per share from continuing operations is forecasted to be higher than prior guidance due to the company’s strong year-to-date performance. It is now projected to be in the range of $0.35 to $0.38 per share.