Post by FD1000 on Mar 29, 2023 21:42:41 GMT
(seekingalpha.com/article/4590993-high-yield-means-high-risk-stocks-with-serious-warning-signs?mailingid=30999377&messageid=must_reads&serial=30999377.880068)
Summary
* Equities with high yields can mean high risk. When markets fall, especially in a high-interest rate environment, the risk on high-yielding stocks may be even greater.
* This article highlights three stocks with high yields that have poor overall metrics, posing many quant warning signals, intensified amid the banking crisis and interest rate climb.
* Notably, REITs and the real estate sector, despite portfolio diversification and typical inflation-beating income streams, should be viewed with caution when their yields are abnormally high.
* Despite offering tremendous yields and trading at discounts, investors should be on high alert when stocks display very large yields, as high yields are often a tell-tale of risk.
Investing in Stocks for Income: Treasuries or High Yield?
Over the last few years, we’ve witnessed a pandemic, economic corrections, tech and banking crashes, crypto scandals, and a real estate market that’s soared and flattened. When considering ways to hedge against inflation, some of the most apparent methods involve diversification. Finding investments that pay income to naturally offset a drop in portfolio gains and to offset drops in currency that result in decreased purchasing power leads many to think of high yield.
Especially as today’s interest rate poses the biggest risks, the price of T-Bills and Treasuries backed by the U.S. government offering 4% to 5% makes stocks once considered high yielding less attractive to investors. Why accept the risk of equities when I can receive a guaranteed 4.76%, as showcased above? And if you’re an investor with a higher risk threshold and considering low-quality equities, in today’s environment with the current rate and terms the government offers, I’d rather buy bonds - less risk involved. Then when you factor in the higher cost of capital that corporations are now exposed to due to higher interest rates, their ability to maintain dividend payouts and high yields comes into question and reduces confidence. In a slowing environment, where companies are experiencing earnings misses and dwindling profits, the likelihood of a dividend cut increases, particularly for low-quality companies that already lack profits. Focusing on profitable companies with solid growth and fundamentals can help a portfolio stand the test of time. With cash no longer king as purchasing power falls and inflation eats away at profits, companies holding high cash levels should quickly review their cash management policies.
Summary
* Equities with high yields can mean high risk. When markets fall, especially in a high-interest rate environment, the risk on high-yielding stocks may be even greater.
* This article highlights three stocks with high yields that have poor overall metrics, posing many quant warning signals, intensified amid the banking crisis and interest rate climb.
* Notably, REITs and the real estate sector, despite portfolio diversification and typical inflation-beating income streams, should be viewed with caution when their yields are abnormally high.
* Despite offering tremendous yields and trading at discounts, investors should be on high alert when stocks display very large yields, as high yields are often a tell-tale of risk.
Investing in Stocks for Income: Treasuries or High Yield?
Over the last few years, we’ve witnessed a pandemic, economic corrections, tech and banking crashes, crypto scandals, and a real estate market that’s soared and flattened. When considering ways to hedge against inflation, some of the most apparent methods involve diversification. Finding investments that pay income to naturally offset a drop in portfolio gains and to offset drops in currency that result in decreased purchasing power leads many to think of high yield.
Especially as today’s interest rate poses the biggest risks, the price of T-Bills and Treasuries backed by the U.S. government offering 4% to 5% makes stocks once considered high yielding less attractive to investors. Why accept the risk of equities when I can receive a guaranteed 4.76%, as showcased above? And if you’re an investor with a higher risk threshold and considering low-quality equities, in today’s environment with the current rate and terms the government offers, I’d rather buy bonds - less risk involved. Then when you factor in the higher cost of capital that corporations are now exposed to due to higher interest rates, their ability to maintain dividend payouts and high yields comes into question and reduces confidence. In a slowing environment, where companies are experiencing earnings misses and dwindling profits, the likelihood of a dividend cut increases, particularly for low-quality companies that already lack profits. Focusing on profitable companies with solid growth and fundamentals can help a portfolio stand the test of time. With cash no longer king as purchasing power falls and inflation eats away at profits, companies holding high cash levels should quickly review their cash management policies.
