Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Seadrill Ltd (NYSE: SDRL ) slipped 1.5% this morning after Wells Fargo downgraded the offshore driller from market perform to underperform.
So what: Along with the downgrade, analyst Matthew Conlan lowered his price range to $30-$33 (from $40-$42), representing as much as 20% worth of downside to yesterday's close. While contrarians might be attracted to the stock's steady decline in recent months, Conlan thinks there's more room to fall given the riskiness of its high-yielding dividend.
Now what: According to Wells, Seadrill's risk/reward trade-off is particularly unappealing at this point. "It has long been our analysis that SDRL's aggressive dividend policy has never been funded solely by the operations of its high-quality fleet, but instead has been funded through the sale of i) equity (and convertible debt) in SDRL, ii) equity in sponsored 'child' entities ... and iii) the outright sale of rigs (including sales to its child entities)," noted Conlan. "As equity and asset values are slipping, we think SDRL may fail to secure the sales prices and external financing required to sustain its current dividend." Of course, with the stock now off more than 20% from its 52-week highs, and trading at a P/E of seven, much of that concern might already be baked into the price.
More reliable ways to build wealth
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks, as a group, handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks, in particular, are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.