High dividend yields can indicate company risks

Investing in stocks with high dividend yields can attract attention, especially for new investors. However, caution is essential. While dividend-paying stocks generally show strong performance over time, a high yield can sometimes indicate underlying problems. A company's dividend yield is calculated by dividing the annual dividend by the current stock price. For example, if a company pays $5.12 in dividends and its stock costs $163, the yield is 3.1%. If the stock price drops to $80 but the dividend stays the same, the yield rises to 6.4%. This increase can seem appealing, but it could also highlight that the company is in trouble. Three high-yield stocks on the Nasdaq include Icahn Enterprises LP, AGNC Investment, and ZoomInfo Technologies. Icahn Enterprises LP currently has a yield of 31.2%. However, the stock has fallen 45% in the past year and 77% over five years, indicating potential risks. The company is known for investing in troubled businesses, and its structure as a master limited partnership can complicate taxes. AGNC Investment has a yield of 14%. It specializes in mortgage-backed securities rather than physical real estate. While it has shown positive past returns, it faces risks related to interest rates and loan defaults. ZoomInfo Technologies offers a yield of 12% but has seen its stock drop 34% over the past year. While it recently exceeded earnings expectations, its revenue was still down year over year. Investing in such volatile companies can be risky, and thorough research is recommended. In summary, while high dividend yields can be tempting, investors should carefully evaluate the risks and performance of these stocks. It may be wiser to consider companies with more stable dividends and growth potential.