While a double-digit dividend yield may sound appealing to income investors, it’s essential to exercise caution when approaching these ultra-high yielding names.
In a recent Lightning Round segment on CNBC’s “Mad Money” program, a viewer asked host Jim Cramer about Annaly Capital Management Inc. (NYSE: NLY) – a mortgage real estate investment trust (mREIT) with a stunning yield.
The company pays quarterly dividends of 65 cents per share, giving the stock an annual yield of 14%.
But Cramer is no fan.
“It’s a stock that I think is a trap,” he said. “He always looks like he’s a high performer, but the thing is, he’s been a high performer for years and years. I want to stay away.”
While Cramer warned investors of the potential pitfalls of this high-yielding stock, there are other dividend games in the market. Here are three that Wall Street finds particularly appealing.
Check:
Realty Income Corp. (NYSE:O)
Realty Income is a REIT that bills itself as “The Monthly Dividend Company,” and it deserves that title. During its 54 years of operation, the company declared 636 consecutive monthly dividends.
Even better, Realty Income has increased its payout 121 times since its IPO in 1994.
Today, the REIT pays monthly dividends of 25.5 cents per share, which translates to an annual return of 5.1%.
The amount isn’t quite as high as the 14% yield offered by Annaly Capital, but keep in mind that the average dividend yield for S&P 500 companies is only 1.6% at the moment.
Stifel’s Simon Yarmak has a Buy rating on Real Estate Income and a price target of $71.25, implying a potential upside of 19%.
While publicly traded REITs have been popular, new companies have innovated to allow people to earn passive income in the real estate market. Here’s how to invest in rental properties with as little as $100 and still be completely self-sufficient.
First Energy Corp. (NYSE:FE)
FirstEnergy is an electric utility headquartered in Akron, Ohio. It has 10 electric distribution companies serving customers in Ohio, Pennsylvania, New Jersey, West Virginia, Maryland and New York.
Utilities companies have long been a staple for dividend investors due to their reliability. No matter what, people will still have to turn on their lights at night.
FirstEnergy has a quarterly dividend rate of 39 cents per share, which gives an annual yield of 4% at the current share price.
In the first quarter, the company posted net income of $292 million, or 51 cents per share. In its earnings release, FirstEnergy confirmed its long-term target of an annual growth rate in operating earnings per share of 6% to 8%.
Stocks are down 7% year-to-date, but Morgan Stanley analyst Stephen Byrd sees a rebound on the horizon. Byrd has an overweight rating on FirstEnergy and a price target of $45 – about 15% above the stock’s current position.
LP Energy Transfer (NYSE:ET)
Energy Transfer holds one of the largest portfolios of energy assets in the United States
With approximately 120,000 miles of pipelines and associated energy infrastructure, the partnership has a strategic network that spans 41 states and all major production basins nationwide.
In April, Energy Transfer announced a quarterly cash distribution of 30.75 cents per unit. At the current unit price, the amount translates to an annual return of 9.7%.
In the first quarter, Energy Transfer’s distributable cash flow (DCF) attributable to partners totaled $2.01 billion, more than the amount needed to pay cash distributions to partners for the quarter.
“On a committed basis, we had excess DCF of $640 million after distributions of $967 million and growth capital of $407 million,” Energy Transfer co-CEO Tom Long said. during the earnings conference call.
JP Morgan analyst Jeremy Tonet has an overweight rating on Energy Transfer and a price target of $18. Considering the stock is currently trading at $12.75, the price target implies a potential upside of 41%.
There are many high-yielding areas in the mid-energy sector. If you prefer a diversified approach rather than picking individual stocks, you might want to check out exchange-traded funds that focus on the sector. The USCF Midstream Energy Income Fund (NYSE:UMI), for example, seeks “a high level of current income” and capital appreciation and offers exposure to a range of midstream energy assets. Energy Transfer is currently his second participation.
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This article Jim Cramer Says This 14% Yielding Stock Is A Trap – Here Are 3 Dividend Plays That Might Be More Reliable Originally appeared on Benzinga.com
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