A 99% Dividend Yield? Yes, It Really IS Too Good to Be True

If you want a good example of why naively chasing yield is a phenomenally bad income investing strategy, take a look at Whiting USA Trust (WHX). WHX currently sports a yield of over 99%. That’s a yield that would make just about any income investor’s mouth water. You get back substantially your entire investment in a single year via dividends; any residual value would be pure profit, right? Not exactly right. There’s just a tiny problem with the logic.

See, WHX is liquidating. By the company’s own estimates, it will make its last dividend payment in March of next year, after which point its value will be zero. As in literally nothing. WHX will have no assets. No residual value. Best estimates for the dividends expected to be paid between now and next March are about $1.75 based on the amount of oil and gas assets remaining in the trust. At time of writing, WHX is trading for about $1.90 per share. So, any investor buying WHX “for the dividend” is effectively locking in a 9% loss.

Source: InvestorPlace

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