While a double-digit dividend yield may appear enticing to income investors, it is crucial to exercise caution when approaching these ultra-high-yielding names.
In a recent Lightning Round segment of CNBC’s “Mad Money” program, a viewer asked host Jim Cramer about Annaly Capital Management Inc. (NYSE:NLY) — a mortgage real estate investment trust (mREIT) with an eye-popping yield.
The company pays quarterly dividends of 65 cents per share, giving the stock an annual yield of 14%.
But Cramer is not a fan.
“That’s a stock that I think is a trap,” he said. “It always looks like it has a high yield, but the fact is it’s been a terrible performer for years and years. I want to stay away from it.”
While Cramer has warned investors about the potential pitfalls of this high-yield stock, there are other dividend plays in the market. Here’s a look at three that Wall Street finds particularly attractive.
Check out:
Realty Income Corp. (NYSE:O)
Realty Income is a REIT that brands itself as “The Monthly Dividend Company,” and it deserves that title. Through its 54-year operating history, the company has declared 636 consecutive monthly dividends.
Better yet, Realty Income has increased its payout 121 times since going public in 1994.
Today, the REIT pays monthly dividends of 25.5 cents per share, translating to an annual yield of 5.1%.
The amount is not as high as the 14% yield offered by Annaly Capital, but keep in mind that the average dividend yield of S&P 500 companies is just 1.6% at the moment.
Stifel’s Simon Yarmak has a Buy rating on Realty Income and a price target of $71.25, implying a potential upside of 19%.
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