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There’s an old investing adage that says the higher the risk, the higher the potential for return. Often, but not always, investors need to take on more risk to get higher returns. It is their reward for investing their money at the risk of loss.
All investing involves some risk-taking, but many investors (especially those looking to earn income) prefer to limit their risk. However, for those who want to take more risks, there are some interesting income opportunities. For example, someone with $10,000 wants to invest in higher risk, higher upside opportunities. This could potentially turn that money into a great source of income by investing in her three high-yielding dividend stocks.
|
dividend stocks |
investment |
current yield |
Annual dividend income |
|---|---|---|---|
|
rhythm capital (NYSE:RITM) |
$3,333.34 |
9.62% |
$320.51 |
|
Medical Property Trust (New York Stock Exchange: MPW) |
$3,333.33 |
16.53% |
$551.00 |
|
NextEra Energy Partner (NYSE:NEP) |
$3,333.33 |
12.04% |
$401.33 |
|
total |
$10,000.00 |
12.73% |
$1,272.85 |
Data sources: Google Finance and author calculations.
Let’s take a closer look at why yields are so high and whether these companies can sustain high dividends.
Evolution of high-yield REITs
Rhythm Capital is unique Mortgage Real Estate Investment Trust (REIT). We started with a focus on investing in mortgage repayment rights. However, it has since expanded its platform and evolved into an asset management company. Last year, the firm took a notable step in its transformation by acquiring Sculptor Capital Management in a deal that significantly expanded its asset management capabilities.
The company believes: Shift to asset management This will put us in a good position to maintain our revenue base and grow our business. A more stable and growing revenue base will improve its ability to pay dividends.
However, as Rhythm Capital becomes more of an asset management company; Company risks outgrowing REIT structure. In that case, it may be necessary to convert to a taxable corporation. Due to such a switch, there is no need to meet the high dividend requirements as a REIT, so there is a possibility that dividends will be reset. That would allow Rism to retain more cash to fund its growth ambitions. Potential dividend reset risk is a factor that income-oriented investors should consider.
unhealthy tenant
Medical Properties Trust healthcare REIT Focusing on hospital management. The company has been under tremendous pressure in recent years due to tenant issues and rising interest rates. These headwinds have already caused REITs to cut their dividends by almost half last year.
Hospital owners are working directly with tenants, offering assistance in the form of rent deferrals and loans. The company hopes that these measures will help tenants overcome the difficult situation and resume paying rent.But the company seems to be taking one step forward and two steps back as tenant issues remain unresolved. Improve as quickly as expected.
In addition to tenant issues, Medical Properties Trust is battling rising interest rates. Refinancing maturing debt is becoming more difficult. As a result, the REIT was forced to sell properties to pay off debt. Although it has the funds needed to pay off its 2024 maturity, more debt will be paid over the next few years. If interest rates and REIT tenant issues don’t improve, the company may have to cut its dividend again to preserve more cash to pay down debt and rebuild its portfolio.
lack of power
NextEra Energy Partners also faces strong headwinds from rising interest rates.they made it even harder Renewable energy Producers will have access to low-cost capital needed to redeem maturing funds or finance new acquisitions.
The company is being forced to change gears due to problems. The company announced plans to sell its natural gas pipeline assets to fund the redemption of maturing funds. The company completed one sale late last year and plans to put its remaining gas pipeline assets up for sale in 2025.
Additionally, NextEra Energy Partners has slowed its growth targets. It lowered its forecast for dividend growth by 2026 from 12-15% to 5-8% annually, with a target of 6%. The company has also shifted its primary driver of growth from acquisitions to repowering existing wind farms.
One of the concerns about the company’s strategy is that Dividend payout ratio This very high level leaves little room for error. If the company runs into problems with the sale of its remaining gas pipelines or its power supply plans, it may need to cut its dividend to strengthen its balance sheet and fund growth.
High risk/high dividend stocks
Rithm Capital, Medical Properties Trust, and NextEra Energy Partners offer great yields to investors. Unfortunately, they also contain high-risk profiles. As such, they are not for everyone. However, for those with a high risk tolerance, the strategy could offer a significant income stream and significant upside potential if the strategy can be implemented while maintaining dividends.
Should you invest $1,000 in Rithm Capital now?
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Matt DiLallo holds positions at Medical Properties Trust and NextEra Energy Partners. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
Not afraid to take risks? The article These Ultra-High Dividend Stocks Can Turn $10,000 into Almost $1,275 in Annual Income was published by The Motley Fool.
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