Are these 10%+ dividend stocks too good to be true? Maybe not

I have my eye on two dividend stocks with forecast dividend yields of 14.4% and 11.3%. They’re both investment trusts, which are able to hold back cash in good times to keep the dividends going in weaker years

But if investors aren’t snapping up these two, does that mean they’re too risky to chance? Let’s examine them.

Energy efficiency

The 14.4% dividend is from SDCL Energy Efficiency Income Trust (LSE: SEIT). The company invests in projects in the UK, Europe and North America. And it says its “objective is to generate an attractive total return for investors comprising stable dividend income and capital preservation, with the opportunity for capital growth.”

The big dividend yield sounds like it fulfills part of that goal. But what about capital preservation? Ummm, not quite. Just look at the following share price chart and weep…

Buying £1 for 48p?

In a March trading update, CEO Jonathan Maxwell said the company’s “active management of the assets in its portfolio has delivered substantial income.” He added that “this stable performance ensures that we can cover the target dividend of 6.32p.”

But the net asset value (NAV) really catches my attention, as the boss said “our priority remains reducing the current discount to NAV.“

The last published NAV was 90.5p per share, with a current estimate of 91.8p. On a 44.2p share price that’s a 52% discount. Who wouldn’t pay 48p each for pound coins? NAV isn’t quite as clear as currency, but that could be a bargain.

The main risk seems to centre on energy efficiency having fallen from favour. But I think it’s worth considering, though I’d wait for results.

Eastern dividends

Henderson Far East Income (LSE: HFEL) offers the 11.4% forecast yield. And again, its an investment trust whose share price hasn’t been having a great time.

There’s no discount to NAV this time, but instead a 4% premium. So why the relative share price weakness? The trust counts several Chinese banks in its top 10 holdings and we’ve seen doubts over the Chinese financial sector in recent years.

But Taiwan Semiconductor is in the mix too along with HSBC Holdings, and confidence in both of those seems strong. I’d be tempted to think the US-China trade war is damaging the stock, though that’s only a recent thing.

Increased dividends

Yet with April’s interim results, chairman Ronald Gould spoke of attention “riveted on current market developments in light of dramatic new tariff initiatives from the US“.

He also said many of the trust’s holdings “increased their dividend per share and/or introduced share buyback programmes,” and spoke of “confidence to forecast a strong improvement in dividend growth over the remainder of the current financial year“.

It sounds like we can probably depend on the cash this year at least. A future cut, though, could hit the share price. Fears over the economies of China and the Far East have to figure among the reasons to be cautious here. What’s the long-term future for Asia like? Very positive, I’d say. I definitely have this one on my candidates list.

The post Are these 10%+ dividend stocks too good to be true? Maybe not appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.