Sell These 3 High Yield Stocks Before Earnings

Quarterly earnings release time is the real news make or break time for most publicly traded companies. For investors in many publicly traded companies, these once-every-three months information dumps are the only time actual business results can be reviewed and analyzed. All the stuff you read in the 90 days between release dates are just speculations, projections and guesses. When the actual earnings numbers come out, the market often is not kind to share prices when the earnings report or management statements include bad news or negative business projections.

If you regularly follow how a company’s business operates, it is possible to get an idea what may come out in the next earnings reports. With some companies, the economic conditions in their business sectors will provide a preview of what may happen when earnings are released. For example, energy companies are affected by changing values for crude oil, natural gas and fuels, depending on what they do in the broader energy market. With other companies the potential benefits and dangers are subtler, and unless you follow the companies very closely, you could get blindsided by a negative earnings report.

High yield shares are especially subject to falling share prices if the market reads the financial reports and decides there is potential for a dividend reduction. Nothing scares the market more than the fear of a dividend cut from a big dividend stock. Here are three high-yield stocks with significant probability of a negative earnings surprise.

Ship Finance International (NYSE: SFL) owns a diverse fleet of commercial vessels. These ships are leased on long term contracts to shipping operators. Ship Finance gets a significant portion of its revenue from Seadrill Limited (NYSE: SDRL) which is going through a bankruptcy like reorganization. Ship Finance has worked out a new payment scheme with Seadrill, and in late August the SFL dividend was reduced by 22%. Contrary to what you would expect, after the initial price decline following the dividend announcement, the SFL share price has gained over 14%. I think the market is wrong about Ship Finance doing better after the dividend cut. I reviewed the company’s two must recent earnings reports and there are negative headwinds in several of the shipping sectors. I recommend against holding SFL shares through the earnings release in late November.

Annaly Capital Management, Inc. (NYSE: NLY) is a high-yield, agency mortgage-backed securities (MBS) owning REIT. In its 2017 first quarter earnings report the company owned $74 billion worth of agency MBS. The company owns $10 billion of other assets, including $5 billion of commercial property mortgages. This large pile of assets is held aloft by a total of $72 billion of debt. In the quarter, Annaly reported an average asset yield of 2.93% and an interest cost of 1.74% leaving a net spread of 1.19%. This spread is down from the second quarter and almost half of the 2.28% spread reported in the first quarter of 2016. Long term rates as indicated by the 10-year Treasury bond remain stubbornly in the 2.25 to 2.3% range. The Fed plans to continue to increase short term rates. Last quarter, NLY just covered the $0.30 per share dividend. If the company does not cover the dividend this quarter, the share price will fall. This company’s profits are being tightly squeezed and the next Fed rate increase is going to significantly tighten the noose.

KKR Real Estate Finance Trust Inc. (NYSE: KREF) is a very new commercial mortgage REIT. The company came to market with a May 4 IPO. The shares were priced at $20.50, and now, are trading at $21.35. The company had $838 million dollars of committed capital at the end of 2016. The IPO raised another $200 million, which went into the KREF asset base. The prospectus lists a book value per share of $19.91 following the IPO. The public float after the IPO is 21.5% of the total shares. As of March 31, 2017, the company had originated $1.08 billion dollars of targeted assets. These asset types are senior real estate loans, mezzanine loans, and commercial mortgage backed securities (CMBS) “B pieces”. The third quarter earnings report will be KREF’s releasing of its first full quarter results. The danger with this stock is that it appears to be overpriced with a current 6.9% yield. Other, much larger, more established commercial mortgage REITs yield 7.9 to 8.8%. If KREF does not come out with very spectacular earnings then I expect that the market will start to price this stock like its peers, which means a 14% to 20% share price decline.

SFL, NLY, and KREF are the types of investments that I help my Dividend Hunter readers avoid. Nothing will damage your income portfolio like a high yield stock that cuts its dividend. Instead, my readers are holding onto quality high yield stocks collect the dividends every month as part of a new income system called the Monthly Dividend Paycheck Calendar. It’s currently set to pay out over $40,000 a year in extra income and has an important action date right around the corner.

Get up to 14 dividend paychecks per month from safe, reliable stocks with The Monthly Dividend Paycheck Calendar, an easy-to-use system that shows you which dividend stocks to pick, when to buy them, when you get paid your dividends, and how much.  All you have to do is buy the stocks you like and tell them where to send your dividend payments. For more information Click Here.


Source: Investors Alley