Yesterday marked the five-year anniversary of the Safety Net column.
Since 2013, I’ve warned readers many times about companies whose dividends were not safe, only to be proven right a short time later when they cut their dividends.
In 2017 alone, we predicted several dividend cuts, including those by General Electric (NYSE: GE), Plains All American Pipeline (NYSE: PAA) and Prospect Capital Corp. (Nasdaq: PSEC).
But since we’re celebrating today, let’s focus on the good stocks, not the cutters.
Four of the five highest-yielding stocks are real estate investment trusts or master limited partnerships. The top five are…
1. Apollo Commercial Real Estate (NYSE: ARI): 10% yield
I reviewed top-ranked Apollo Commercial Real Estate just last month.
I mentioned it received an A rating because of its strong net interest income growth and ability to cover the dividend.
2. Buckeye Partners (NYSE: BPL): 9.6% yield
In the first nine months of 2017, Buckeye Partners’ distributable cash flow (DCF), a measure of cash flow for partnerships, slipped to $542 million from $555 million in the first three quarters of 2016. It paid out $542 million in distributions. So it covered the distribution, but just barely.
If the company’s fourth quarter DCF doesn’t push 2017’s full-year figure above 2016’s, we could see a downgrade. And if the full-year distribution is greater than the DCF, the downgrade could be significant.
The full-year results will be out February 9.
3. Maiden Holdings (Nasdaq: MHLD): 9.1% yield
Maiden Holdings is a reinsurance company. The company has a very low 15% payout ratio based on cash flow from operations.
Despite its strong dividend safety rating and high yield, I have never been a fan of the company due to low confidence in the company’s management. Additionally, some have questioned the company’s accounting practices. I’m not the only one with concerns – the stock has fallen by more than 50% in the past year.
4. TC Pipelines (NYSE: TCP): 7.5% yield
TC Pipelines has raised its dividend every year since 1999.
DCF totaled $238 million through the first nine months of the year. Similar to Buckeye, that’s down from last year’s DCF. It paid out $210 million in distributions, so it still has plenty of cash to cover the distribution.
The distribution isn’t in immediate danger, but if the company’s full-year DCF is below last year’s, it will likely receive a downgrade.
5. Western Gas Partners (NYSE: WES): 7% yield
On the other hand, Western Gas Partners grew its DCF by 11% in the first three quarters of 2017. Its $695 million in DCF easily covers the $589 million in distributions it paid out during the year. I don’t expect any problems when the company reports full-year results in mid-February. In fact, the company just raised the dividend 7% over last year’s total.
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