Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

TradeBot

Why is a Stock That Pays a 40% Annual Dividend...bad?

Recommended Posts

I'm looking at a company called Whiting USA Trust (WHX). The annual dividend is $2.14 - a 42.64% yield. EPS is about 2 and P/E is about 2.41x

 

This is a company that has been around for more than six years, and has varied in price from about $22.50 to $3.75. Currently, it is trading at $5.08. The ex-div date on 2/14 paid $.55/share. The dividends have ranged from $.45/share to $.70/share, paid on a quarterly basis since the companies inception.

 

Fundamentally, the company has zero debt, which is great, but it looks like the company total equity has been slowly dropping over the last 5 years. Somewhere in the neighborhood of 15% per year on average. Their retained earnings have been steady, and actually increased a fairly sizeable amount (+50%) over the last year.

 

They're performance compared to their industry looks strong.

 

My friend once told me that company's that offer dividends that have a ridiculous annual yield (>10%) typically do so because the company is weak and they want to drive the stock price up.

 

Which begs the question. If a company has a fairly stable stock price, and is paying out 30-40% in dividends annually...why wouldn't everyone and their brother want to own that stock?

Share this post


Link to post
Share on other sites

High dividends are there for a reason. Usually that reason will not be obvious or made known to you until it is too late.

 

They take 100% of your money now. Pay you 40% dividend for 2 years and then the stock goes to zero. They just made 20%.

Share this post


Link to post
Share on other sites

Is it interesting or relevant that you did not say - what the company does, how it makes its money, why its paying a large dividend, what their business future projection are. etc.

It might be a single coal mine nearing the end of its life.

 

These might be more relevant in this circumstance than simply rattling off the numbers.

 

plus $22.50 to $3.75 and currently at $5.08 over the last six years does not sound that stable a price.

Share this post


Link to post
Share on other sites

Generally, the market perceives that the dividend is at risk of being cut when it is so many standard deviations away from the average dividend in that industry.

 

I have bought high dividend stocks in the past ( never more than 15%) and made great money. You'd be better off doing the research and creating a portfolio of such stocks, rather than looking at one.

Share this post


Link to post
Share on other sites

I figured it out. It turns out this trust will cease it's operations once 9.1 MMBOE is produced and 90% of profits from the sale are distributed among the shareholders of the trust. That's estimated to be in March of 2015, and when the estimated value of the stock will drop to zero.

 

My question is, with the stock price valuation looking to be zero this time next year, would this be a great position to short? If a trust ceases operations and the stock drops to zero or ceases to exist, and I buy it at $5.25 a share, would that mean I would profit $5.25/per share, or would I lose all my money because the trust ceased to exist?:missy:

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • @sxiqxx, Well done on making your first post a promising strategy. @everyone, post up if you want this coded into an EA. Although I switched to TradeStation, I still have an active MT5 demo with MetaEditor. I can code it without referencing object oriented programming which should be retroactively compatible with MT4. Let me know...
    • Please allow me to retort (in jest): RESPONSE 1 : Get a job supervising others where you're in control of performance reports and ride those others 100%. This makes your performance 100% with little to no effort.   RESPONSE 2: Feel free to piss off your boss but stay nonviolent. When the side effects of his viagra and testosterone boosters cause him to physically assault you, you have the legal upper hand. This can result in a boatload of trading capital.   RESPONSE 3: Feel free to have intimate relations with your boss if she finds you attractive. Rest assured that mum's the word because once again, you have the legal upper hand. This can also result in a boatload of trading capital.   RESPONSE 4: Don't be fake friends with any enemies... unless you need information from them. Being fake friends with everyone will cause you to become an empty shell of a person with no direction in life.   REPONSE 5: Get your boss to become reliant on your performance (really, just the performance of your subordinates), and then plan an "overheard" conversation wherein you fake an interview with another potential employer. You'll probably get a pay increase or a promotion.   RESPONSE 6: If you can give your 75% percent to a project, give 50% and rely on your legal upper hand(s). Learn to write trading algo's during your other 50%.   RESPONSE 7: Take all of the office boys out to nightclub where you merely sip soft drinks on a weeknight. Upon your return to the office in the morning, inform the security guards that all of the office boys are intoxicated. Your boss will love you for it.   RESPONSE 8: Never try to prove your client wrong or find faults in their processes, but do secretly collect their information in case you jump ship or "someone you know" decides to start his own company.   RESPONSE 9: Never stay in a firm for too long. Instead, use your ill-gotten capital to exit the rat-race and start trading.   RESPONSE 10: Trading pays more than your career. Interpersonal skills are now irrelevant. Use your technical skills for trading. Never stop learning and keep updating your technical skills.😁
    • There are a lot of trading strategies like elliot waves, wyckoff etc so we need to apply those who best suited to our need and are understandable too.
    • Scalping can be good during the high volatile markets however the new traders should be careful while entering and exiting the markets too quickly since they can make losses as well. If the broker support news trading we can make most out of the scalping in my opinion.  
    • In my opinion these candlestick charts are more easier to understand as compared with the other charts.
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.