Everyone is always looking for a quick and easy way towealth .
This desire is what drives the multi-billion-dollar worldwide
gambling industry.Investment trends and fads are no
Investors tend to move as a herd in and out of the latest
get-rich-quick scheme. One of the most popular trends is the
search for high-yieldingstocks .
This trend is driven by lowbond andcash rates, risk fears
stemming from the financial crash andrecession , and the aging
population seeking steadyincome from theirinvestments . When
managed wisely,yield investing is a proven method to help build
wealth and generate income.
The worst way to participate in this lucrative trend is to
simply chase the highest-yielding stocks. In the yield-investing
world, bigger is not always better. In fact, ultra-high-yielding
stocks are often flashing danger signals -- because yield
increases as thestock price decreases.
It's critical for investors to understand that high yield does
not always equate to high-quality stocks. To avoid becoming one
of those high-yield seeking investors who get burned when their
favorite ultra-high-yielding stock crashes, always look at the
company's fundamental and technical picture. Looking at only the
yield is a quick way to the poorhouse.
One example of an ultra-high-yielding stock that should be
avoided by all but the most nimble short-term traders is
Diana Containerships (Nasdaq: DCIX)
||@ Diana Containerships
||The high-yielding Diana Containerships is right in the
center of this global slowdown.
This shipping company has an astounding 27.9% trailing
annualdividend yield . Talk about a powerful attraction for
high-yield seeking investors. However, all is not as it seems
with the stock.
The slowdown in the world'seconomy has hurt the
containershipmarket . The International Monetary Fund projects
worldGDP growth to be just 3.1% in 2013. In addition, theIMF is
projecting a continued slowdown in China and a negative 0.7%
growth in the eurozone. None of these things bode well for the
worldwide product shipping business.
The high-yielding Diana Containerships is right in the center
of this global slowdown. While the company is optimistic that a
recently securedloan facility , new shareissue and
acquisitionswill enable it to continue paying out the dividends,
the internal numbers tell a different story.
Time charterrevenues fell to just over $12 million in the
second quarter from close to $15 million ayear ago. In addition,
anet loss of $5 million was reported during the same quarter. On
top of the weak performance, the company has announced that the
nextdividend will be cut by 50%, to 15 cents per share. Investors
who are not paying attention to their holdings could easily be
surprised by this lowered dividend.
A look at the technical picture shows Diana Containerships has
been in a downtrend since June 1. It is trading solidly below the
50- and 200-day simple moving averages with slight
technicalsupport evident in the $3.60 range.
Risks to Consider:
High yield without the support of fundamentals and company
growth can be a dangerous signal for investors. While Diana
Containership may become profitable given an improved world
economy and prudentmoney management, the risk is simply too high
right now for yield-seeking investors.
Action to Take -->
If you own Diana Containerships, you may wish to close your
position. I do not see anyupside for this company over the next
12 months. If you see things differently, watch the stock
carefully and be ready to sell should matters get worse.
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