What’s the scariest thing that could happen to your dividend stocks?
News that a company is reducing ̶ or worse ̶ suspending its dividend payment.
It’s unfortunate that companies with the highest yields have the riskiest dividends.
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On the surface, dividends that are greater than 10% are attractive. A 10% annual income stream is five times more than the average yield for stocks in the S&P 500 index.
But that income is ONLY attractive if the stock performance doesn’t suffer.
Most companies that pay high yields ARE risky.
The reason that the yield is high is because the market perceives considerable risk. That risk could be related to the stock price, or the company’s ability to meet its dividend commitments.
Companies with high yields are often facing financial troubles. That means that the dividend could be significantly reduced ̶ or even completely eliminated.
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That’s exactly what happened with a company called SeaDrill (NYSE: SDRL) back in 2014.
The offshore drilling company had shrinking profits after a steep decline in oil prices. In August 2014, the company promised that its $1-per-share quarterly dividend would remain intact through 2015. At the time, Seadrill was trading above $35 per share with an 11% dividend yield.
Just three months later, the company completely eliminated its dividend.
The stock market quickly punished SeaDrill, and by the end of the year shares were trading at $12. Shares have continued steadily dropping, currently trading for just above $2.
SeaDrill is one of the best-known high-yield stocks to completely eliminate its dividend. There are several U.S. companies that are listed on major stock exchanges that could soon announce a big dividend reduction. Two of these include Ferrellgas Partners (NYSE: FGP), with a 21.7% yield, and DHT Holdings (NYSE: DHT), with a 21.1% yield.
Companies with large declared dividends are typically unsustainable. Both of these companies have current dividend commitments that cost MORE than their operating cash flow.
That means they are dipping into cash savings or issuing debt in order to maintain their current dividend payouts. That’s a recipe for failure. It’s like taking out a second mortgage in order to cover your living expenses.
The Beauty of Special Dividends
Our unique research discovered that the best large dividends are special dividends.
These are one-time payouts that happen due to a specific event. This means they are typically paid when a company has the cash on hand to fulfill the obligation.
Why do companies pay special dividends? There are several great reasons, including:
- Recording earnings
- Large amounts of accumulated cash on the balance sheet
- Liquidation of a business division
- Legal settlements
When companies issue special dividends for the right reasons, it can signal a bright future.
Special dividends are one of the most overlooked income situations. That’s why I’m inviting you to an exclusive income event:
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For the first time ever, I’ll be revealing everything inside a live 60-minute webinar.
Steve Mauzy and I spent more than six months researching 4,218 special dividend situations.
After analyzing these payments, we identified an amazing income trading strategy.
In fact, it could help you start collecting 1-day payouts of 5% to 60%.
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