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Jul 072014
 

It’s a little different version of recycle Friday today. Back in late 2011, I took a look at 15 stocks that gave investors a more than 10% dividend. I did zero research besides using a stock screener and typing some words into a laptop which probably had porn open on another tab. I was a sad little man back then. Now? I’m a sad larger man.

I thought it might be fun to see how these investments did, and whether stretching for yield was worth it. Let’s take a boo.

1. WP Newspapers

This is a small cap newspaper company, which owns a couple dailies in Manitoba. This company is currently on the Uproar Fund watch list, which I assure you is a real thing.

Then: $3.88
Now: $4.31
Dividends: $1.55

Total return: 51.0%

The company managed to maintain the dividend, and delivered some nice returns. Solid.

2. Calument Specialty Products

These guys make all sorts of weird specialty products from oil — stuff like fuel additives and specialty lubricants. No, not that kind of lubricant. 

Then: $19.38
Now: $32.38
Dividends: $6.39

Total return: 100%

TWO FOR TWO I AM A JENIUS.

3. Extendicare

Canada’s second largest retirement residence operator, with a couple hundred facilities scattered across Canada and the U.S. Unlike the first two, this company actually cut its dividend, from seven cents a month to four. Apparently wiping grandma’s ass isn’t quite as lucrative as they first thought.

Then: $7.41
Now: $7.40
Dividends: $1.19 + $0.56 = $1.75

Total return: 16.7%

Extendicare lagged the market, but still wasn’t a total disaster.

4. Telecom Corp of New Zealand

Was the largest operator in the country when I wrote the original article, but was getting hammered by Vodafone and some other wireless start up.

Then: $8.08
Now: $11.73
Dividends: $2.37

Total return: 74.5%

This company technically cut its dividend, but stocks that aren’t North American do this all the time. It just gradually cut back its payout. Revenue is still declining, btw.

5. Horizons Alpha-Pro Enhanced Income Equity ETF

This bad boy writes covered calls on the underlying dividend stocks it owns. Here’s another company that does the same thing.

Then: $7.98
Now: $7.56
Dividends: $1.55

Total return: 14.2%

The monthly income on this went from nearly 11 cents per share back in late 2011 to just about 4 cents currently. Considering how well every other part of the market has performed, it’s fair to call this one a failure.

6. Dreyfuss High Yield Strategies Fund

A closed end fund that buys junk bonds in the U.S., which also borrows an additional 25% of the value of the fund to really enhance returns. Full disclosure: I’ve owned this fund for nearly a decade. Let’s see how I did over the past few years.

Then: $4.38
Now: $4.30
Dividends: $1.09

Total return: 26.7%

Annualized, that works out to a hair less than 7%, which is exactly what you’d expect that investment class to do. It has cut the distribution a few times, since junk bond yields continue to fall. Still, that’s a solid result for a supposedly risky stock yielding more than 10%.

7. Canfor Pulp

One of Canada’s largest pulp producers, back when this was a crummy business.

Then: $11.80
Now: $12.82
Dividends: $0.8325

Total return: 15.7%

The company cut the dividend in 2012, and hasn’t been a great performer. It was basically dead money.

8. Hatteras Financial

Hatteras is a mortgage REIT, which borrows money in the short term and then lends it out longer term, pocketing the difference between long and short rates. There’s always the risk they can’t rollover the short term debt, but it’s minimal.

Then: $26.70
Now: $19.41
Dividends: $7.65

Total return: 1.4%

Go ahead and call this one a bust, because it’s the worst we’ve looked at so far. Shares still yield above 10% if any of you are still interested.

9. Coast Wholesale Appliances

A small-cap retailer of appliances to mostly home builders and big landlords. A privately held company called CWAL has made a bid to take over the company at $4.55 per share.

Then: $3.55
Now: $4.62
Dividends: $0.87

Total return: 54.7%

The company survived cutting its dividend in late 2012. If you would have bought then, you would have gotten the admiration of all the ladies. Still, a solid return.

10. Frontier Communications

Frontier offers home phone, internet, and TV to small towns and rural folk who get bored with inbreeding and talking about corn.

Then: $5.12
Now: $5.85
Dividends: $1.00

Total return: 33.8%

File this one under the ‘meh’ return part. You’re still getting an almost 7% dividend if you’re interested in this niche business. It has a bunch of cash on the balance sheet and has enough cash flow to pay the dividend.

11. Superior Plus Corp.

This company is interesting. It used to be a propane driller, but got out of that to get into the chemicals business. It supplies pulp and paper with the chemicals needed to turn wood into other stuff, while providing potassium and other chemicals to U.S. customers. It also has a construction arm, which makes insulation.

Then: $5.79
Now: $14.24
Dividends: $1.55

Total return: 173.7%

OH BOY I THINK WE HAVE A WEINER.

12. MGC Capital

Because we’re 12 in and I’m getting lazy, allow me to quote Google Finance. “MCG Capital Corporation is a solutions-focused commercial finance company that provides capital and advisory services to middle-market companies throughout the United States.”

Then: $4.54
Now: $3.89
Dividends: $1.30

Total return: 14.3%

Once again, a meh return. The company slowly cut its dividend over the years, and is currently paying out less than half what it did back in late 2011.

13. Capstone Infrastructure Fund

It’s a power company, which had all sorts of hydroelectric plants and solar technology. The fun part? It announced it was cutting its dividend the very day I suggested it. Thanks, guys.

Then: $5.74
Now: $4.38
Dividends: $0.955

Total return: -7.1%

Finally, one that lost money. Although, in my defense, you would have made a nice return if you would have bought it a week after I talked about it, at $3.80.

14. The Data Group

These guys were paying out 5.42 cents per share monthly when I mentioned it, which worked out to a 20-something percent yield. Could they sustain it?

Then: $3.35
Now: $0.69 (GIGGITY)
Dividends: 0.875

Total return: -53.3%

Well, apparently I saved the crappy ones for last, since selection number 15 was a joke which I specifically told you kids to avoid. (It was Yellow Media, which ended up going bankrupt. I foresaw this because Nostradamus is my bitch.)

Let’s see how my 14 high yielding stocks did compared to the underlying stock market.

High yielders: 36.9%
TSX 60 ETF: 36.1%
S&P 500 ETF: 66.3%

My group of misfit high-yielders did pretty well when compared to the TSX, but not so much when compared to the S&P 500. Comparing the group’s return to the stock market is a little unfair, since the vast majority of names on the list were low growth and high income stocks, but it’s the best we’ve got.

So in conclusion, it certainly would have been possible for Canadian investors to beat my group, and pretty easy for Americans to do the same thing. But it proves one thing — a high yield doesn’t necessarily mean high risk. You can make money pulling high yielding stocks out of your ass, like I did.

I think most investors would take an annualized return of around 14% a year, especially considering how many of the high yielders had pretty much zero growth prospects.

 

 

Tell everyone, yo!

  5 Responses to “A Look Back At Stretching For Yield”

  1. It’s good to hear that some stocks with super high returns can do well! I got burned on AGF when I bought in at a 7% return. I didn’t lose anything, but I wouldn’t call it a good investment, either.

  2. […] And rounding out the blast from the past, Nelson Smith looks back at a post he wrote about stretching for yield.  In 2011, these 15 stocks paid over 10% in dividends and here’s how they’ve performed. […]

  3. I disagree with your statement that “most investors would be happy with a return of around 14%”. You could get a higher return simply by buying the index. Why would you be happy with a lower return when you can get a higher return? If you used comparably risk adjusted index funds/etf’s (small and value) – admittedly difficult in the Canadian market, but easy in the US market, you would be even further ahead just by buying index funds/etfs

    • Something like 9/14 of the stocks were Canadian, so comparing the results to the U.S. doesn’t really make sense. It’s a very apples to oranges comparison (and doesn’t factor in the currency, which would have gone against an investor, weakening returns). I just put the S&P 500 number there as a FYI.

      The fact is that the basket outperformed the TSX 60 over the time period, which are supposed to be the best and most secure names in the market. For supposedly weak companies that the market had written off, that ain’t bad. Which was the whole purpose of the exercise.

  4. I guess hindsight is 20/20 but I like to sleep at night and not worry about my investments. Nice article but certainly not for the faint of heart! :)

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