10 Commodity Stocks Yielding up to 10%

One of the intriguing aspects of super high-yielders is trying to identify what effect a future dividend cut may have on the stock. In mid-November, I took a look at NuStar Energy L.P. (NYSE:NS) and noted that if the dividend wasn’t going to be as sharply cut as some had feared, then shares might post a quick rebound.

Sure enough, shares have rebounded more than 10%, “driven by a relief rally related to an allaying of concerns around the sustainability of NS’ current distribution,” noted analysts at Merrill Lynch. In effect, investors have captured a solid dividend yield and some quick capital appreciation.

Cliff Natural Resources: How much of a cut?
The same investigation should be done on Cliffs Natural Resources Inc (NYSE:CLF). The iron ore and coal miner has hiked its dividend from 25 cents a share in 2009 to $2.50 a share this year, though the current 8.7% yield implies a looming dividend cut.

Yet on a recent call with analysts, management noted plans to throttle back capital spending rather than cut the dividend. In effect, investors will be paid to wait with its juicy yield in 2013 and can then hope to see share price upside in 2014, as iron ore and/or coal prices firm.

Risks to Consider: A sharply weaker global economy in 2013 would negatively affect commodity prices — and these firms’ payouts.

Action to Take –> The best way to play these super high-yielders is to take the long view. The high yields suggest that near-term business conditions remain tough, but if history is any guide, then these stocks will zoom back into favor when the commodity cycle turns. By then of course, the resulting upward move in the share prices means you’ll no longer be able to lock in such attractive yields.

This article was originally written by David Sterman, and posted on StreetAuthority.