High Yield Stocks You Should Discover Now
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In a minute, I’m going to introduce you to a fascinating high yield dividend stock that would literally crawl up and die if the weather was warm all year.
But first…
Is it warm enough for you? How’s your summer going?
Are you deep in the dog days, when the humidity refuses to lift, even for a few fresh hours after the thunderstorms roll through?
We had lightning on the coast a few weeks ago.
Here on the beaches of Southern California, summer thunderstorms are as rare a sighting as a mutual fund that manages to outperform the market.
Did you know that in 2011, the S&P 500 outperformed 84% of all domestic equity mutual funds?
Pretty sad. And over the past few years, the funds haven’t done much better.
What about those mutual funds that invest in high yield stocks?
I’d stay away. Fees can kill you. Do your own research, find your own gems, and dodge the big expenses.
One place I like to look for good high yield stocks is on the S&P SmallCap 600®.
It’s not exactly a walk on the beach, and you’ll run into a bunch of stocks that don’t pay dividends, so you need to do some exploring. But you can find some very attractive…
High Yield Stocks Waiting To Be Discovered
You know one of the great things about a bunch of the stocks on the S&P SmallCap 600?
They don’t get a lot of coverage from Wall Street analysts. They’re buried, and out of the limelight. And without the glare of analysts’ attention, they’re often great deals waiting to be discovered.
For instance, just seven analysts follow Group 1 Automotive $GPI.
Group 1 isn’t a good stock if you’re looking for a high dividend yield right now, but if you’re looking for dividend growth, you might want to check it out.
Here are a few more small cap stocks nobody pays much attention to.
Just three analysts follow Interval Leisure Group Inc. $IILG.
And just two analysts keep an eye on Innophos Holdings Inc. $IPHS.
So if you’re looking for a good deal on high yield stocks, go where the analysts don’t go. Dive into the small caps.
Granted, you’ll find some stiffs, and you’ll find entire industries where just about every stock is on sale.
And that’s just where you want to be… ahead of the crowd.
Kind of like looking ahead to wintry weather in August.
And that brings us to…
The Last Stock You’ll Think About Buying In the Middle Of Summer
You’ve got to love this ticker… $PLOW.
No, not plowing the fields of a farm, but plowing streets, parking lots, and runways filled with snow.
That’s the business Douglas Dynamics $PLOW is in, and it’s one of the high yield stocks that can get your attention.
If you’re a landscaper, or a town or city, and you want to buy plows for your trucks, these are the guys to see. (They can also help you out with a salt spreader.)
$PLOW pays a 4.37% dividend, it has a dividend payout ratio of 63.6%, and the P/E ratio (Price/Earnings Ratio) is beautiful… less than 12.
What is there not to like about Douglas Dynamics?
Well, a couple of things. A few early warning signals. Let me show you what to watch out for so you don’t rush into the arms of a stock with a low P/E and a high yield.
The dividend payout ratio is a bit high, but not spiking in the danger zone.
A major concern? Not yet, but it could be soon.
It’s not exactly one of those dividend payout ratio bombs ready to explode, but it does bear some watching.
Income… it’s slowing down, and clearly it would be nice to see it growing.
When revenue grows, the dividend can be at risk. But when you look at a company like $PLOW and see that there’s been an ugly quarter, you don’t want to overreact.
What should you do when you’re hunting for top dividend paying stocks?
Check to see if the company jacked up its dividend to take the sting off soft earnings.
In this case, no. The Douglas Dynamics dividend has stayed the same for the past few years. That’s good, in a way.
Even when it was selling more plows and revenues were stronger, $PLOW wasn’t growing the dividend. Probably not a bad thing, and here’s why.
A company needs to stay in good financial health. And while paying too high a dividend is good for the health of the investor, at least in the short term, it’s usually not very good for the long term health of the company.
So you’ve got that 4.37% dividend on the table and an outfit that’s been around for 65 years.
But check out the stock price…
I’m not a big chart guy. Technical analysis isn’t my cup of tea, but you always want to pull out the chart to give the stock price you’re looking at some context.
And when you pull out a chart like this one, you can’t help but cringe.
That sharp runup starting the beginning of last year… and before that, those 20% plunges, I get the shakes when I see this kind of stuff.
The volatility is scary. And so is the current price, even at a P/E ratio of 12.
$PLOW is a pretty expensive stock. It seems to me Douglas Dynamics should be trading between 11 and 14, not up in the 20s.
Comforting as it is to think about snowplows in August, by the time the blizzards hit, I figure Douglas Dynamics will be trading for a lot less than it is today.
Pour yourself a glass of lemonade (or something more substantial) and head back to the S&P SmallCap 600 for another look. Find something else, because it looks like $PLOW is about to skid off into the ditch.
Look at the stocks like $GPI and $IILG that the Wall Street analysts don’t pay much attention to.
Avoid the pitfalls of a stock like $PLOW where the yield and the P/E ratio look good…
But dig deeper into the snowdrift of data and you’ll find the indicators that look as threatening as a Nor’easter bearing down on the New England coast.
Cordially,
Paul Duke
Note: Paul Duke writes and edits DividendStocksResearch.com. Sign up for our free dividend reports and dividend newsletter at https://www.dividendstocksresearch.com/free-sign-up. We’ll show you how to create regular income by investing in dividend stocks, easily, step-by-step.
Category: Dividend Stocks To Buy?
