With stock screeners becoming easier to use, many new traders are entering investing circles, thinking they have all the information they need to make a decision. For example, plugging in high dividend yields in your chosen screener might display relatively unknown companies that pay 10%, 20%, or even 30% yields—leading some to think they’ve found an unpolished gem that the market has not discovered yet.
Unfortunately, dividend investing is more than just high yields. There’s nuance to the analysis, which might not be readily apparent to new investors and could lead them to lose their hard-earned money or get disappointed when they don’t get their expected yields.
And believe me, this issue isn’t limited to new traders. Investors with any amount of experience can also overlook important facts.
How I Came Up With The Following Stocks
To get my list today, I used Barchart’s stock screener and entered the following filters (along with discussing why I chose them):
- Current Analyst Rating: 1 (Strong Sell) to 3.4 (Hold). This is self-explanatory, though, for reference, using these values will include companies that have no analyst coverage.
- Dividend Payout Ratio: 100% or more. The dividend payout ratio indicates how much of the company’s net income is spent paying dividends to shareholders. The healthy range here is roughly 50% or less since it leaves the company more money to fund expansions or operational improvements, thus leading to more value. For this analysis, I’m looking for companies that pay more than their earnings in dividends, which could mean that they’re using credit lines or exhausting cash reserves to keep up the appearance of paying a high dividend —a definite red flag.
- Annual Dividend Yield: 10% or more on a trailing twelve-month (TTM) basis. I think 10% is enough to convince some investors to blindly invest in these “high-yield” companies. After all, you don’t often see 10% interest rates on savings, time deposits, bonds, or any other investment instrument.
With these filters set, I ran the analysis and got 16 results.
I then arranged them from the highest dividend payouts to the lowest and will now cover the top three, starting with:
Chicago Atlantic BDC (LIEN)
Previously Silver Spike Investment, Chicago Atlantic BDC is a business development company that primarily invests in private companies, focusing on providing capital to businesses that may not have access to traditional financing. It is known for targeting niche industries, including the cannabis sector, which often faces regulatory and financial constraints in obtaining capital from conventional banks.
LIEN pays 25 cents quarterly or $1 in annual dividends, which translates to a 7.77% yield on a forward basis. On a TTM basis, the yield is at 11.27%.
On face value, that’s a great proposition.
What’s not great about LIEN, however, is that its Q3 2024 report shows a less-than-$0.005 net investment income (NII), which is the primary metric used to determine a BDC’s ability to pay dividends.
Meanwhile, the company's dividend payout ratio on a trailing twelve-month basis is 282.13%. A payout ratio this high suggests that LIEN will not be able to reliably and sustainably maintain its high yields.
CrossAmerica Partners LP (CAPL)
CrossAmerica Partners LP is a master limited partnership that operates fuel distribution and convenience stores in the United States. The company focuses on delivering motor fuels to convenience stores, independent dealers, and commercial customers and owning and leasing real estate used in the petroleum industry. As of 2024, CrossAmerica has more than 1,800 distribution locations and 1,100 owned or leased locations across 34 states.
CAPL stock pays a 52.5-cent quarterly dividend, which works out to $2.10 annually. Based on the stock’s current trading price, it translates to an attractive 10.33% yield. Interestingly, the company has maintained this payout amount since 2018.
However, looking at its latest filings makes me wonder how long it could keep paying the same amount. The Q3 2024 report shows that CrossAmerica earned 27 cents per share—nearly half of its dividend payouts. Its TTM dividend payout ratio paints the same picture at 247.56%.
Marine Products Corp (MPX)
Marine Products Corp is a designer, manufacturer, and distributor of recreational marine vehicles in the US, Canada, and other regions. It caters primarily to the leisure marine market, offering products for activities such as fishing, water sports, and general recreational boating. The company is known for building the Chaparral Sterndrive powerboats and the Robalo offshore fishing boats.
MPX had been quite generous with dividends this year, paying 56 cents per share in regular dividends annually plus a 70-cent special dividend payout, resulting in a 12.63% yield TTM.
However, the company’s Q3 2024 report was rather negative, with net sales decreasing by 36% and net income decreasing by 67% to $3.4 million or 10 cents per diluted share. It also has a 229.93% dividend payout ratio, which makes me think that the 70-cent special dividend was just a way to temporarily attract investors at the expense of reduced cash and cash equivalents.
Given its financials, I don’t expect MPX to pay further special dividends in the near-future, which cuts its yields down to 5.61% on a forward basis. It's still high, sure, but its high payout ratio doesn’t give me much confidence.
Final Thoughts
Don’t blindly invest in stocks with high dividends. Always look into the whys and hows, and do your due diligence. You never want to be blindsided by something already crystal-clear to others who have done their research.
