These Big Yields Aren't So Worrisome

You know the conventional wisdom: If a stock sports a particularly high dividend yield, beware! Yields will grow steep as a stock falls in price. Many high-yield companies are in trouble, and many hefty dividend payouts just aren't sustainable.

That's all true. But sometimes, high-yield companies are still worth considering.

Here are a few names that I've been keeping my eye on lately, with the help of Motley Fool CAPS:

  • Otter Tail (Nasdaq: OTTR  ) , 6.2% dividend yield: Don't be fooled by this utility concern's funny name. Some may not like its debt, or its occasional habit of diluting existing shares by issuing new ones. But that's common in the industry, and Otter Tail's a big player in wind energy, a resource we won't run out of any time soon.
  • Linn Energy (Nasdaq: LINE  ) , 9.5% yield: If you think we'll keep using oil for a long time to come, this name should attract you. It's a master limited partnership (MLP) that pays out most of its earnings in dividends. It also offers tax-deferral benefits, thanks to its MLP status.
  • Philip Morris International (NYSE: PM  ) , 5% yield: True, tobacco isn't the biggest growth industry in the U.S. But this American company is all about selling tobacco products internationally. If you don't have ethical objections, you can reap a nice dividend and look forward to rising sales from developing countries. That's a handy way to diversify a portfolio.
  • Companhia Siderurgica Nacional (NYSE: SID  ) , 7.7% yield: Brazil's third-largest steel company kept its dividend intact during the recent global slowdown. It's positioned to do well once Brazil's economy perks up.
  • Exelon (NYSE: EXC  ) , 5.5% yield: Exelon generates 75% of its output from nuclear plants, producing 20% of our nation's nuclear power. With oil still spilling into the Gulf, nuclear energy has been drawing more interest than usual lately, and Exelon also stands to benefit from any cap-and-trade legislation.

Each of these picks has earned a top five-star rating on CAPS, enjoying overwhelming support from members.

You're right to be wary of steep dividends, but you needn't summarily pass them by. A little digging might reveal a potential long-term dividend-paying winner.

Another kind of winning company revolutionizes an existing industry or ushers in a new one. Learn about the most exciting stocks we study.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Philip Morris International is a Motley Fool Global Gains recommendation. Otter Tail is a Motley Fool Hidden Gems choice. Motley Fool Options has recommended writing puts on Exelon, which is a Motley Fool Inside Value pick. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 07, 2010, at 3:11 PM, kramsigenak wrote:

    I believe SID now pays 3.6% divy after the 2-1 stock split. It's not reflected on the website yet, but my broker at TD Ameritrade concurs.

    Linn Energy is a great high divy company, and is hedged for quite some time to protect the payout.

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