The relationship between risk and reward never changes. If
you're seeking great riches -- in the form of juicy dividends --
then you're likely pursuing very speculative investments. On the
flip side, seeking "safe"
payers likely means you're going to get a paltry payout.
But sometimes it's OK to shoulder a good deal of risk, especially
if it's only a small part of your portfolio. As long as you stay
current on what's going on at the company in which you have
invested, you may be able to get out of the stock before the risk
part of the equation comes back to bite.
Out of curiosity, I went in search of micro-cap and small-cap
investments (with amarket value below $500 million), and was
surprised to find dozens of choices thatyield 10% or more. Logic
would tell you that if these high payouts were sustainable, then
more investors would pile into them, pushing up their price and
pushing down their
. Yet some of these high-dividend investments can keep the payouts
coming -- if the chips keep falling their way.
Cornerstone Progressive Return Fund (AMEX:
as an example. The fund invests in a range of unusual securities
such as high-yield municipal debt and
plays on proposed acquisitions. The fund intentionally seeks out
investments that few others would dare touch because of a
higher-than-normal possibility the investment will go bust. Yet the
strategy has worked fairly well in recent years. From 2008 through
2010, the fund paid out more than $36 million in dividend income to
investors. Right now, the fund expects to pay out about $0.10 a
share per month, or around $1.20 per year. That's good for a 16.6%
Life Partners Holdings (Nasdaq:
may be the poster child for risk and reward. The company, which
re-sells life insurance policies (known as "life settlements") has
failed to file its most recent
. Ernst & Young decided to stop acting as the company's auditor
in June, citing a revenue recognition policy that was far too
aggressive. Those factors partially explain whyshares have fallen
75% this year, pushing thedividend yield into the mid-teens.
The company's problems appear to revolve around
estimates for the projected life span of insurance policy holders.
Undercutting projected dates leads to an inflated value for each
policy. Management presumably has learned to throttle back its
aggressive stance with its new auditors that joined about a month
We'll soon find out. Life Partners plans to get up to date with its
filings next week. This should enable Life Partners to regain
compliance with Nasdaq. Results will likely be re-stated to reflect
more conservative actuarial forecasts. Still, if those filings are
otherwise clean, then
may see a quick upturn, providing solid
along with that juicy payout. But it pays to wait and see if the
company needs to re-state past results -- and possibly cut that
The energy sector offers plenty of high-yield plays simply because
output of oil and gas is very robust in certain areas relative the
cost of the land that was initially acquired. For example,
Whiting Petroleum (NYSE:
paid around $400 an acre for more than 600,000 acres that are now
producing a high output of oil and gas.
In a bid to raise money to tap its energy fields, Whiting formed a
consortium with other financial backers and sold an interest in
futurecash flow streams. That entity, known as
Whiting USA Trust 1 (NYSE:
is aprofit gusher in its own right, offering a 16%
. Over time, those energy fields will start to produce less oil and
will start to drop. The key is for the drop to happen slowly, so
this trust keeps paying out enough for investors to recoup their
initial investment and also make a handsome
Lastly, I'm intrigued by a high-yielding closed-end fund run by
Germany-based Allianz Global, one of the world's largestasset
management firms. The
AGIC International & Premium Strategy Fund (NYSE:
seeks out stocks outside the United States and then focuses on the
best options strategy for producing income from those stocks
through the premiums written by selling
Quarterly payouts have been erratic. The fund paid out $0.23 a
share each quarter in 2009, though that payout was cut in half in
2010 as the options strategy didn't do as well in a fast-rising
market. Payouts have rebounded nicely in 2011, averaging $0.40 a
share in each of the last two quarters. That $1.60 annualized
payout equates to a 12% dividend yield. Shares, which have
historically traded at a slight
premium to Net Asset Value (
currently trade at a slight discount.
Action to Take -->
To capture such high yields, each of these investments has strayed
from the beaten path, seeking out unusual investments that aren't
being chased by other investors. They certainly entail ample risk,
but their business models have proven themselves over time. If
you're comfortable with the risks, then consider taking a flier on
one of these names.
-- David Sterman
"10 Stocks to Hold Forever"
One of these stock has plowed through 8 bear markets and has
returned over +170,000% since 1972. Every $700 you invested back
then would be worth more than $1 million right now. Today, the
company is raising its dividends, spending billions to buy back its
own shares, making smart acquisitions, and is the dominant leader
in a $30 billion market. This is just one of the 10 best "Forever"
stocks to own today.
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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