For investors looking for high yield stocks to boost fixed income, a major pitfall is that such companies may soon be slashing their payouts dramatically as the economic downturn continues to challenge their businesses.
But for those who are not averse to a higher level of risk, a segment that is always reliably available to capture higher returns, are companies that are turning around. Such companies often offer attractive returns.
But that's why there are of course additional dangers. In a typical turnaround situation, companies are trying to reduce their massive debt burden, or they face a situation where disruptors are putting their market share at risk.
For those interested in trying their luck in this potentially dangerous part of the market, here are our top three picks to consider:
America's largest telecom operator, AT&T (NYSE :), is a high reward, albeit potentially high risk bet. With an annual dividend yield now in excess of 7%, it offers one of the best returns available from a blue chip stock with a long track record of paying dividends.
Shares of the Dallas-based company are down about 30% since the start of the year, closing at $ 29 Friday.
There is considerable uncertainty surrounding AT & T's robust return. The core businesses of this iconic brand are struggling, and the company has accumulated enormous debt.
Under new Chief Executive Officer John Stankey, who took over in July, AT&T is seeking to reduce its size after years of growth through acquisitions. The Wall Street Journal recently reported that telecom is trying to sell most of its DirecTV satellite television division to private equity investors. The divestment would help AT&T cope by removing a major impediment to its operations.
Last year, Elliott Management Corp., a hedge fund with an activist agenda and a $ 3.2 billion stake in AT&T, criticized the company for major acquisitions, including the $ 85 billion deal to buy Time Warner assets including HBO, CNN and Warner Brothers Studio. The hedge fund is pushing AT&T to sell the loss-making DirecTV unit and wireless operations of the company in Mexico.
For investors, the risk at this point is whether AT&T will be able to successfully transform its business and compete with entertainment disruptors such as Netflix (NASDAQ 🙂 and Amazon (NASDAQ :), and whether such success is $ 0.52 would save a quarterly payout of the share
2. Exxon Mobil
Exxon Mobil (NYSE: NYSE :), one of America's oil super majors (NYSE: NYSE :), currently presents a compelling risk-reward comparison.
The company has impressive scale in everything from drilling to refining to access to the US shale region, but the giant is under tremendous pressure as demand for its products has collapsed due to the pandemic.
While the stock is unlikely to generate massive profits for investors itself, the stock remains a top choice for long-term energy bulls.
The stock, which closed at $ 36.90 Friday, is down more than 40% this year, pushing the stock's dividend yield to more than 9%.
The multinational oil and gas giant has so far resisted lowering its holy quarterly dividend of $ 0.87 per share. However, analysts are divided on whether the company will be able to tolerate cash payouts when its profits are wiped out.
The Irving, Texas-based energy major posted back-to-back, most recently in July, for the first time this century. It reported a deficit of $ 1.1 billion, compared to profit of $ 3.1 billion in the same period a year ago. Exxon also told investors it will delay its ambitious expansion plans to save money.
However, buying stock for the juicy payout also means you are betting that the futures of major oil companies are secure and that Exxon will continue to produce enough cash to cover its generous dividend.
The age-old tech giant International Business Machines (NYSE 🙂 has been at a crossroads for years. Big Blue, as it is sometimes colloquially referred to, is struggling as technology and consumer preferences evolve rapidly, depriving this tech sector legacy company of its major sources of income.
IBM & # 39; s sales peaked in 2011 and free cash flows did so a year later. The company's push to refocus IBM's operations on the latest technologies, such as the cloud and artificial intelligence, has so far produced only mixed results.
During this period, IBM exited a number of markets, invested in cloud data centers, and bought a number of companies to boost sales, bolster technology offerings, and add a wealth of data to build artificial intelligence (AI) algorithms. train.
While IBM has so far been slow to gain a leading market share in these new areas of the digital economy, the manageable debt and recurring cash flows of the dividend make a relatively safe bet for income-oriented investors.
The stock, which closed Friday at $ 121.46, is yielding 5.41% at a rate of $ 1.63 per share per quarter.
The stock remains about 44% below its record high of $ 215.80 in 2013, testing the patience of the company's buy-and-hold investors. The analysts average target price for this stock is $ 135.19 for the next 12 months.
Investing in turnaround situations can yield huge returns over time. But such companies also entail additional risks. As such, investors must be extremely careful when choosing high yield stocks.