Monday, October 1, 2007

Dividend plays for volatile times

Dividend plays for volatile times
By Jim Jubak


[...] As always, the question is how far to reach for yield. I can certainly find stocks with strong current cash flows and high yields but where the strength of future cash flows seem very closely connected to the fortunes of the U.S. economy. For example, Nordic American Tanker Shipping (NAT) pays a dividend of 12.04%, but the company has just warned investors that the third quarter looks soft. According to the company, jitters in the financial markets have led to softness in spot rates for tankers.

I don't know if that's the reason, in which case the problem will pass quickly, or whether the weakness reflects some deeper trend in the global economy. But given that 11 out of the company's 12 tankers operate in the spot market, instead of being under long-term contracts, the company's business is very leveraged to the rate of growth in the global economy. Since I know that I don't know the rate of global economic growth in the next year with any certainty, reaching for that much
yield is too risky right now [...]

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