patrick.net

Annaly has significant downside risk, which is why the yield is so high. They're benefitting immensely from low interest rates, and a rate hike could damage them commensurately. They're also leveraged more than 5:1.

It's not necessarily a bad play, but it's a holding I'd limit exposure to and watch particularly carefully.

WHAT ABOUT AGNC???

I can tell you that FRO is very volatile, and is also strongly correlated with oil prices. When Oil goes up, FRO goes up.

More stocks shown:

http://www.thestreet.com/dividends/leaders/index.html?cm_ven_int=more

http://seekingalpha.com/article/264970-6-stocks-with-dividend-yields-ranging-from-8-to-15

UBSONICE says

WHAT ABOUT AGNC???

I had a bit of money in AGNC for a while, and I sure did enjoy the dividends...But as someone mentioned about NLY, the high dividend directly reflects the downside risk. As I understand it, AGNC makes their money by taking the capital from stock sales, leveraging it with cheap loans (I think AGNC is closer to 8:1 leverage), and then they use all that money to buy government backed loans (home mortgages) package them up and re-sell them. When the current interest rates are lower than the rates when the loans were originally written, they can make money by selling the loans at a premium. They don't hold on to the loans very long, and they are government backed loans...so the downside risk from defaults is minimal...BUT, they require low interest rates to make money -- both so their borrowing costs are low and so the interest rate spread on the mortgages is enough to make a meaningful profit...But if interest rates climb, (which I think they are likely to do), their business model doesn't work. Also AGNC has been issuing a lot of stock to raise more capital, putting downward pressure on the stock price. I think some analysts have also questioned if their dividend is sustainable, as a big portion of it was from non-recurring sources...

Again, I enjoyed the big fat dividends, and to some extent I enjoyed the novelty of keeping daily tabs on the stock, but in the end I was too concerned with the effect of interest rate hikes...Leverage is a double edged sword, so the fantastic upside potential can turn into a fantastic downside reality...

E-man,

What do you think about some of these other companies I have presented? You have some great insights. I used to have a REIT stock (GLB) but I sold it years ago. I averaged about 7% on the dividend, plus it appreciated while I owned it.

I will be following those companies, even though I don’t own their shares…

Good timing now to buy these high dividend stocks? Interest rates are to stay low for years...

E-man,

Thanks again always! I may put a bit in (SH) short term as a hedge. I just thought that now that Bernanke has all but guaranteed at near ZIRP policy into 2013, that some balance of high dividend companies might be good for my portfolio.

The rest of us are just placing bets as if at the roulette table if we invest in the stock market. The whole system is rigged and most of us are fools if we think we can beat it. Of course the analysts and CEOs want you to continue to believe you have a chance and continuously feed us info that make the gullible believe they do. Don't listen.

Invest in your local community, not on Wall Street.

PasadenaNative says

if we think we can beat it

Why do we need to beat the stock market? We can match the performance (via an index fund) and compound wealth quite nicely. Check out Stocks for the Long Run or Common Sense on Mutual Funds.

Stock market is where the real wealth are created. Locally, buying land and RE can work also but it requires a lot more capital to make it happen.

Holy Shit! GOLD PLUMMETS to levels not seen in....

Wait for it.....

20 minutes!

Dividends are definitely nice and 7% or more is incredible. However, I'm concerned about the volatility of many of these high-dividend stocks. Take Frontline Ltd (7% dividends):

That 7% dividend doesn't mean much when the stock loses 66% of its value!

Does anyone have a diverse portfolio of high-dividend stocks that has a more conservative risk level? Vanguard has its Vanguard High Dividend Yield Index fund, but that has pretty dismal returns and has been quite volatile.

Well, have fun in the market. I for one do not want to participate. It makes me sick to my stomach. I find the pursuit of financial wealth to be incredibly dull. Good health and time spent caring for loved ones is what makes life worth living...imho! :-)

PasadenaNative says

Well, have fun in the market. I for one do not want to participate.

There is much in the domestic and international stock markets to make one sick, particularly all the speculation. Unfortunately, in the long run, the stock markets are the only viable way to prepare for retirement and other long-term financial goals.

There is nothing immoral or unethical about investing. The purpose of investing is to allow people to trade instantaneous gratification for long-term prosperity by converting their earned money from wasteful idleness (sitting in a zero or low yield bank account) to enabling people to start/run business, get education, invest in capital goods, etc. Long-term investing without the zero sum games is actually an ethical and socially responsible pursuit despite all the vileness of many in the financial professions.

Even more importantly, investing in stocks (whether U.S. or foreign) is absolutely critical to very long-term investments like IRAs and 401Ks. People need to prepare for retirement starting in their early 20s. And when you are in your 20s and 30s, most of your retirement investments should be in stocks. As you get older, you should slowly (over years) reallocate to mostly bonds and money markets / CDs.

An unfortunate fact is that if a person avoids the stock markets his/her entire life, that person is ultimately hurting his/her retirement. And any savings account that returns less than 3% is actually losing purchasing power when you consider inflation (the increase in the money supply). Under such circumstances, a penny saved is a penny lost.

Dan8267 says

An unfortunate fact is that if a person avoids the stock markets his/her entire life, that person is ultimately hurting his/her retirement.

Have you ever bumped into someone who said "I do that 401(k) thing at work" and then you find out that they've been putting all their money into the default investment without touching the account? That's fine when it's a target 20XX fund, but it's scary when it's either cash/cash-equivalent or company stock. I discovered the latter a few times, unfortunately.

Dan8267 says

And when you are in your 20s and 30s, most of your retirement investments should be in stocks. As you get older, you should slowly (over years) reallocate to mostly bonds and money markets / CDs.

This is absolutely false and can only be applied to people fortunate enough to be born at the right time in the right place. There is a time to own stocks. There is a time to own bonds. There is a time to own commodities. Anyone transferring their money into bonds right now not only gets mediocre returns, but runs the risk of loss of purchasing power through inflation and rising interest rates, regardless of what age they are.

My Fidelity bond funds were up 12% YTD.

YMMV.

I have to mainly agree with E-man here. Although a balance is necessary. I limit how much time I spend on finances, as I had been spending too much time on them. If you can live off the grid in Ko Phi Phi, Bali or rural Ohio or some other place, all the more power to you, though (I have considered it). There is one Japanese guy who owns a small island in the Philippines...

E-man says

send your kids to college

I think the Native went on record that she and her boyfriend aren't into The Kid Thing.

corntrollio says

then you find out that they've been putting all their money into the default investment without touching the account?

I don't know what you are talking about. Whenever I started a 401K or an IRA, I had to explicitly choose which funds and what percentage for each fund I wanted to invest in. I've never heard of a "default fund".

theoakman says

This is absolutely false and can only be applied to people fortunate enough to be born at the right time in the right place. There is a time to own stocks. There is a time to own bonds. There is a time to own commodities. Anyone transferring their money into bonds right now not only gets mediocre returns, but runs the risk of loss of purchasing power through inflation and rising interest rates, regardless of what age they are.

That is certainly one school of thought. Another school of thought is that it is time, not timing, that matters. This approach is argued extensively by John Bogle in his book Common Sense on Mutual Funds. Side note: I read the original version, not this 10th anniversary edition.

Bogle argues that all forms of timing the market are, by mathematical necessity, zero-sum gains. In order for one person to receive a gain in excess of the market return, other people must lose an equal amount (or really more when you take into account expenses and transaction costs). Furthermore, the version to the mean principle ensures that high performing funds will return to market norms. This logic extends to markets composed of submarkets like stocks, bonds, and treasuries.

In addition to Bogle's arguments, I would add the following. Most of us are not working in the financial industry. As such we do not spend all our time researching companies, keeping tabs on the latest news that affects markets, observing the emotional stances of other investors and speculators. Those in the financial sector do.

Do you really want to swim in the same pools as these financial sharks who have quicker access to information and who play these zero-sum games 24/7?

Now, I will readily agree with you that upon observing a bubble or other unusual financial situation (like near zero return rates for treasuries), one should avoid those situations. However, this does not contradict the general guideline of managing the ratio of equity and bonds in your portfolio based on the number of years until you expect to retire. Most financial advisors will give you the same advice.

PasadenaNative says

The whole system is rigged and most of us are fools if we think we can beat it.

That is essentially the philosophy proposed by John Bogle. He says the wise investor does not try to beat the market, but rather tries to match it as closely as possible. The idea is that stock markets, in the long run, return a real rate of appreciation of about 7%. Of course, this varies a lot from year-to-year, but over timespans greater than 15 years, it is almost always the case that stock markets increase at value at about this rate.

I only have two concerns with Bogle's philosophy. The first is that all the retiring baby boomers, who own most of the U.S. stock market, will break this trend within the U.S. stock market simply because they are such a large generation. That is why I'd prefer to be long in the world stock markets minus the U.S.

My second concern is that the parasitic behavior, including such things as microtrading and naked shorting, may diminish the long-term return of stock markets. Man, I would love to interview John Bogle about these issues.

Dan8267 says

I don't know what you are talking about. Whenever I started a 401K or an IRA, I had to explicitly choose which funds and what percentage for each fund I wanted to invest in. I've never heard of a "default fund".

Fair enough, but some jobs require you to opt out of a 401(k) and have default investments if you never set it up. This is not uncommon, and in some cases the default investment is cash. I know someone who had their investment in cash for at least 20 years, unfortunately. As I mentioned, it'd at least somewhat better if the employer offers target-year funds, and puts the default investment as the appropriate target-year fund.

Dan8267 says

The first is that all the retiring baby boomers, who own most of the U.S. stock market, will break this trend within the U.S. stock market simply because they are such a large generation. That is why I'd prefer to be long in the world stock markets minus the U.S.

But then shouldn't you give equal weight to demographic trends in other countries? Parts of Europe = population shrinking, Japan = population graying, etc. It seems like you are making a categorical error here.

Dan8267 says

Bogle argues that all forms of timing the market are, by mathematical necessity, zero-sum gains. In order for one person to receive a gain in excess of the market return, other people must lose an equal amount (or really more when you take into account expenses and transaction costs).

Yes, this is why there's no such thing as "cash on the sidelines." When someone enters the market with $X cash, another person exits the market with $X cash (less transaction costs, as you said).

How about ARR, CMO and CYS?

and this:

http://www.fool.com/investing/general/2011/08/24/will-the-us-downgrade-doom-these-high-yielding-sto.aspx

Another article on REITs (many of these firms are REITs) :

http://seekingalpha.com/article/289697-mreits-4-worst-case-scenarios-from-ben-bernanke-s-speech?source=yahoo

Thanks again, E-man!

There's no free lunch. There is no reason a company should be paying more than 1 to 2 % for a dividend yield unless there is a great amount of risk. A 5% dividend yield isn't so great if the stock falls 50%.

Dan8267 says

I don't know what you are talking about. Whenever I started a 401K or an IRA, I had to explicitly choose which funds and what percentage for each fund I wanted to invest in. I've never heard of a "default fund".

I just recently enrolled at work, and for what it's worth the default investment was a target retirement 20xx fund based on your age. (which I thought was a pretty decent way to handle it)

gdcapra says

There's no free lunch. There is no reason a company should be paying more than 1 to 2 % for a dividend yield unless there is a great amount of risk. A 5% dividend yield isn't so great if the stock falls 50%.

A company with limited growth potential (utilities?) has to pay more than 1 to 2% to get my money...so it's not just about stock price risk...for me anyway.

There exist good dividend focused mutual funds, e.g. Vanguard Dividend Growth.