In the space of high dividend yield stocks, Prospect Capital Corporation (NASDAQ:PSEC) and ARMOUR Residential REIT, Inc.(NYSE:ARR) are prominent players, but is it only the highest number that gets to settle this battle? Fox Business‘ Charles Payne handed the trophy to an unlikely winner in this race.
“[…] ARR [ARMOUR Residential REIT, Inc.(NYSE:ARR)] has a sweet yield 14.4. Prospect Capital’s yield, by the way trades under the symbol PSEC, is almost 13%. It’s the stock that I would go with. I feel it’s kind of safer, I think there is more potential for the upside for the actual stock […],” said Payne.
Payne raised an interesting point that the number attached with the dividend yield does not necessarily mean a better investment. There are two other important cosiderations to take into account while investing for a regular stream of monthly income through dividends. Prospect Capital Corporation (NASDAQ:PSEC), in his opinion, performed better than ARMOUR Residential REIT, Inc.(NYSE:ARR) on both counts.
Firstly, it is the upside potential for the stock price. Payne saw Prospect Capital Corporation (NASDAQ:PSEC)’s stock appreciating much more than ARMOUR Residential REIT, Inc.(NYSE:ARR). In case of growth in stock price, merely selling the stock could become a significant source of revenue itself.
More importantly, it’s the risk factor associated with these high dividend yield stocks. Prospect Capital Corporation (NASDAQ:PSEC)’s 13% yield is fairly high as it is, but ARMOUR Residential REIT, Inc.(NYSE:ARR) manages to come over the top and offers 14.4% yield to its investors which sounds borderline ridiculous, or in financial terms, risky as hell.
It is a tricky issue to decide where to draw the line and how to balance risk and return, but investors should keep in mind the most important rule in finance, higher return comes at the price of taking additional risk.
NewOak Capital’s President, James Frischling who was also present during this discussion had similar insights to share.
“[…] The two stocks that got mentioned, huge dividend payers but almost to the point of, I would say that is a level of risk that’s where you are getting those 15 plus dividends,” said Frischling.
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