I’ve said it repeatedly, and I’ll get tired of saying it: Yields aren’t everything when it comes to income investing. Stock research should never start and end with sorting companies by yield alone and buying the top one. There’s a lot of nuance in market research, though I understand that not all retail investors have the time or the inclination to do deep-dives into dozens of different companies.
Still, due diligence is non-negotiable when it comes to investing. To prove the point, let me show you three high-yield companies that are - despite having double-digit dividends - probably not a fit for your portfolio.
How I Came Up With The Following Stocks
To get my list, I used Barchart’s Stock Screener and added the following filters:
- Number of Analysts: 8 and more. More data points equals more convincing results.
- Current Analyst Ratings: 1 (Strong Sell) to 3.4 (Hold). These values represent lukewarm or outright bearish sentiments from Wall Street.
- Annual Dividend Yield: 10% and above. To cap off the list, I’m taking stocks with more than 10% yields on a trailing twelve-month basis. I decided on this because, at face value, investors using screeners for the first few times might be tempted to use the yield filter to search for the highest ones, and these are the stocks that will likely appear.
With the filters in place, I ran the screen and got 13 results:
I arranged the results from lowest to highest analyst rating, then took the top three. Now, let’s kick off this list, starting with:
Svenska Handelsbanken ADR (SVNLY)
Svenska Handelsbanken is one of Sweden’s largest and most established banks. The bank provides a full range of financial services, including corporate and retail banking, asset management, and investment banking, and it has a strong presence in the Nordic region and the UK. Svenska Handelsbanken focuses on long-term profitability and customer relationships rather than aggressive growth strategies.
Svenska Handelsbanken offers a 10% yield to investors. However, the company only pays dividends once a year, which we can see in the steep drop-off in March. So, if you buy SVNLY stock today expecting a 10% yield, you’d be sorely disappointed, at least until March next year.
Furthermore, SVNLY stock has a moderate sell rating based on 10 analysts, so Wall Street isn’t too optimistic about its prospects in the next 12 months.
Kohl's Corp (KSS)
Kohl’s Corporation is an American retail chain that operates a network of department stores offering apparel, footwear, home goods, and beauty products. Like most in the retail space, Kohl’s combines in-store and online shopping experiences to serve millions of customers nationwide. The company continues to expand its digital presence, optimize store layouts, and collaborate with brands like Sephora to enhance its product offerings.
A quick look at KSS’s stock price, we can see the stock has had a rough year. Unfortunately, given its moderate sell rating, the tough times may not be over yet. Kohl’s has been closing stores to keep the business afloat - never a good sign. To add to more bad news, the company’s FY’24 financials pointed to an expected contraction in both sales and earnings, resulting in investors dropping the stock in mid-March.
A 19.19% dividend yield might convince some investors to take a chance on KSS, but remember, those are trailing twelve-month figures. The company has already cut its dividends from 50 cents a quarter to 12.5 cents - a 75% drop. Granted, that’s still a roughly 6.11% forward yield based on current prices, but given its less-than-rosy outlook and tariffs hitting the US retail segment hard, I think that’s unsustainable, and we’ll likely see another cut soon.
Ares Commercial Real Estate Corp (ACRE)
Ares Commercial Real Estate Corporation is a real estate investment trust (REIT) that provides financing solutions for commercial properties across the United States. The company focuses on originating and managing a diverse portfolio of senior mortgage loans, targeting office, multifamily, industrial, and mixed-use properties. ACRE is part of Ares Management Corporation, an investment and private equity firm.
While dividends from REITs are expected to fluctuate based on their performance, ACRE’s trend is worryingly on a downward trend. Its latest quarterly dividend is 15 cents, translating to a 60-cent annual rate and a 12.95% forward yield - that is, if it keeps paying 15 cents quarterly.
High yield notwithstanding, ACRE’s price performance has also been disappointing, with the stock down 21.39% YTD and over -57% in the last 10 years. In fact, its price performance is a “sea of red” across all the usual monitoring periods:
Yes, the stock has a high yield now, but it doesn’t necessarily present an excellent picture for long-term growth. Case in point: analysts rate ACRE a hold.
Final Thoughts
Double-digit yields are attractive - no doubt about that. But, as investors, you always have to ask yourself if it’s even realistic for a company to pay those yields. Too good to be true, and all that. As these three stocks prove, there’s always more than meets the eye, and not every high-yield stock deserves a spot in your long-term portfolio.
