Jul 28 2008
Super high yield, RBS
I’ve had my eye for a week now on Royal Bank of Scotland (RBS). It could be because of the fantastic commercials; I’m ashamed to admit that, but it’s true. You know the ones: someone is in peril, but only the RBS man can save him while the others stand around being stupid. So when the numbers flashed on my screener that their stock had dropped down low enough to be paying a 27% dividend, I had to take pause.
Not only do the commercials look good, but the financial number are pleasing. The ten year income statement shows a strong positive movement. Deposits are up, but there is a big increase in its long term debt, something I find worriesome. Still, there is a dramatic upswing in sales that I like, and then that last dividend of $.67 is very nice.
We’re seeing now a condition in which the dividend are beginning to outweigh the risk of being invested in the stock. I think devoting some 30% of my portfolio to two high risk, but high dividend paying stocks that have strong balance sheets might not be such a bad idea. I think the portfolio’s return on the dividend side could offset any future sinking of the stock because the sector is getting spanked.
Martin Weiss, the conservative analyst believes that the woes of the financial sector is not yet over. I agree. But the sheer amount of money that some of these institutions have made in the past twenty years is difficult for the average investor to assess. Likewise, I don’t see evidence that we are going into a depression, though it certainly is possible. With the pullback of the price of oil, the economy may be given time to catch its breath, and stocks to stabalize a bit. I do think the market will continue to drop, but a high yield like the one offered through RBS might lessen the pain.
Hi Beth,
Thanks for the great work and research on the investing.
Do companies with historically high dividends (like RBS) ever lower their dividend when they are in financial hardships? How do you find out?
Thanks,
David
Hi David! Nice of you to visit? Yes, there is a way you can check on the dividend history. Go to Moningstar.com, put in the call letters of you choice, and click on “dividends & returns” on the left hand side. There you should get a history of dividends.
But you are so right! If the company is in dire straits, they are not going to continue dividends. This has happened in the past with companies that have suffered in some way. That’s why you need to have good sound reasoning for choosing a particulary stock. RBS was a choice for me because it is an international stock, the size of the country is smaller, so hopefully there aren’t as many bad loans going on, and their sales growth was quite good. Another stock I looked at was ABR because the insiders were buying so heavily. I doubted that any CEO would put millions into a stock he felt would be going down.
Come again! Nice to have you! Love the feedback!