Do You Own The Wrong Kind Of High-Yield Dividend Stock?

In this article, Tim Plaehn reveals a major red flag that investors should learn to recognize within any potential high-yield investment. It’s something that many people could easily overlook, but so important that this one thing makes the stock an instant do not invest. If you invest for income, learning this strategy could help save your portfolio. 

During my presentations at the Orlando MoneyShow during the first week of February, I fielded several investor questions on how I analyze and select the dividend stocks I recommend. While I am open to sharing my process, the topic is more appropriate for a longer book or an all-day seminar than it is during a half hour speech.

For this article I’ll show you a high yield stock with factors that would cause me to reject the stock as a recommendation and should give you pause, too.

For its economic sector –dry bulk shipping, Navios Maritime Partners LP (NYSE:NMM) is an above average company and has paid steady dividends to investors since it went public in early 2008. The quarterly distribution rate has never been cut and the current yield is an eye-popping 14.6%. As a final bonus, the Navios management has committed to pay the current distribution rate through at least the end of 2016. These facts make NMM look like a pretty attractive high-yield investment.


Now for the analysis that shows me that NMM is not a good fit for the dividend stock goal of high-yield combined with sustainable distribution growth that’s an integral part of The Dividend Hunter.

Companies that use pass-through business structures like publicly traded partnerships – PTPs and MLPs – and REITs generate growth capital by selling more units or shares into the market. The goal is to take that newly raised capital and invest it into business assets to generate a rate of return that allows the company to grow the dividend rate for all investors who own shares. Corporate management refers to this as accretive use of growth capital. The number of outstanding shares increases, but so does the dividend rate paid to investors.

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Carol W 6 years ago Contributor's comment

greedy bastards!