I bet that title got a few people scratching their heads. “High-yield stocks that you need to sell?" But there’s a good reason, and it’s not just clickbait.
I’ve said this before, and I’ll say it again: dividend yields are not everything. Sure, there’s a certain allure to getting 10% or more. It's even better if the yields go higher as time goes by.
However, investors need to remember that stock price also affects dividend yields. All things being equal, lower stock prices mean higher yields. Unfortunately, no matter how alluring that 10% yield looks, it would be pointless if the company’s stock goes to zero.
Looks can be deceiving, so today, I’ll zero in on three oversold, high-yield dividend stocks that might look like a buy.
How I Came Up With The Following Stocks
I went straight to Barchart’s Stock Screener to get this list, then used the following filters:
- 14-Day Relative Strength Index: Set to below 30. Using its latest price data, the relative strength index indicates whether the stock is oversold or overbought, with 70 and above serving as overbought levels and 30 and below as oversold. Since we’re looking for overstock dividend stocks, I set this to look for stocks with 30 or less RSI based on the last 14 trading sessions.
- Annual Dividend Yield: Set to 5% and above. Average dividends typically range from 2% to 5%, so we’re going with the high end and looking for companies that pay more.
- Overall Buy/Sell/Hold Signal: Set to Sell. Barchart’s proprietary Opinion algorithm uses 13 technical indicators to rate stocks for their potential short-, medium-, and long-term performance. Today, I’m using the filter to look for overall sell ratings, which means the stocks have sell recommendations across all time frames.
- Overall Opinion Direction: Set to Strongest to Top 1%. To further strengthen my picks, I used the overall opinion direction filter. This gauges the likelihood of the stock moving in its current rated direction. The top 1% of this list is based on how many companies in the market have the same rating. So, this screen should show the top dividend stocks you need to sell right now.
After clicking on “See Results,” I got 10 hits. I then arranged them based on the highest overall direction rating and listed the top three in descending order.
Black Stone Minerals (BSM)
Overall Opinion and Direction: Within the Top 1% Of All Sell-rated Stocks
Black Stone Minerals LP is an oil and gas rights company. If you’re not familiar with that term, think of it like real estate trust funds or business development companies, except it focuses on properties used for the exploration, drilling, and production of oil, natural gas, and other related resources. Black Stone Minerals has over 60 productive locations in over 40 states in the U.S.
The company’s latest dividend announcement indicates a 37.5 cent quarterly payout, which is $1.50 annually. Based on current prices, that’s a respectable 10% yield. However, four analysts have given BSM stock a solid hold rating, and given its current price movements, i.e. its fresh 52-week low—do not incite much confidence.
For now, Barchart Opinion’s strong sell rating concurs as indicators point to a strong chance of it slipping further down. Additionally, its dividend payout ratio is unsustainable at 119.12%—far more than any investor should be comfortable with.
Diana Shipping (DSX)
Overall Opinion and Direction: Within the Top 1% Of All Sell-rated Stocks
Diana Shipping is a shipping transportation provider with over 40 dry bulk vessels in its fleet. Unfortunately, its stock price has been on a downward trend since last year. As you can see in the chart snapshot, prices have deteriorated to a new 52-week low.
Now, DSX stock wouldn’t belong on this list if it didn’t offer high yields to investors, and there’s a fair bit of uncertainty around it. The company’s dividend schedules are somewhat erratic, with four quarterly payouts in 2022 and only three in 2023. If Diana Shipping continues to pay quarterly dividends this year, the latest dividend amounts to 7.5 cents a share, or 30 cents annually. That translates to an 11.9% yield based on current prices. Not only that, its dividend payout ratio is excessive, at 165.93%, so the high yield isn't likely to last long.
Oaktree Specialty Lending (OCSL)
Overall Opinion and Direction: Within the Top 1% Of All Sell-rated Stocks
When I set out to scan for these stocks, I didn’t intend to consider 52-week lows. It appears I might as well have, as, like the first two, Oaktree Specialty Lending reached a new 52-week low yesterday. So, its yields might be high now and even higher later—but I doubt it’s because the company increased its payouts.
For context, Oaktree Specialty Lending is a business development company that caters to companies with limited access to typical capital credit facilities. OCSL stock pays 55 cents quarterly, translating to a $2.20 annual rate and a 12.71% yield.
Another running theme I stumbled upon during this analysis is that all three companies have very high dividend payout ratios. In Oaktree Specialty Lending’s case, it's 96.90%.
Final Thoughts
Don’t get fooled by high dividend yields. Always research the companies you invest in and use tools like Barchart Opinion and analyst ratings to solidify your picks. Otherwise, you might be left holding a previously high-yield dividend stock with no value.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
