Once dividend yields are up over 6%, investors should start taking a closer look. When a stock hits 7%, there’s usually a lot of risk involved, or the stock could be due for a decline.
Companies can’t normally afford to be paying that much in dividends. After all, if things were going well, the stock price would rise and the yield would shrink as a result.
Park Hotels & Resorts Inc. (NYSE:PK) is definitely at the high end of that scale, paying investors $2.35 in dividends over the last four quarters. That’s a yield of about 9.4%.
However, it is a little distorted as the company issued a $1 dividend at the end of the year that included $0.30 which was as a result of gains from the sale of assets during the year. Without that, the dividend was $2, yielding around 6.8% based on the price back in December. Based on today’s price, the yield is as high as 8%.
Over the past four quarters, the company has generated $540k in cash while it has paid $461k in dividends during that time.
That’s 85% of the cash that the company has generated being paid out as dividends, and while that may seem high, that could prove to be sustainable, especially without much of a need for capital expenditures.
With the stock trading below book value and at 18 times its earnings, it’s also a good value stock for investors to add to their portfolios.
The main reason for Park Hotels’ high yield is because the stock has fallen nearly 20% in the past six months, which began after the company issued quarterly results which saw profits decline by 35% from the previous year.
However, it has started to rally in the past month, rising more than 7% and the stock could be a great deal for both dividend and value investors today.
