Playing With Fire? Four Huge Dividends up to 16.5% the Pros Say We Should Avoid

The article highlights a contrarian investment strategy of identifying undervalued stocks with high dividend yields that are currently out of favor with Wall Street analysts, who have "Buy" ratings on over 76% of the S&P 500. It specifically examines four companies—National Storage Affiliates Trust (NSA), CNA Financial (CNA), Cricut (CRCT), and Goldman Sachs BDC (GSBD)—noting their dividend yields ranging from 6.6% to 16.5% and the reasons for their current lack of analyst support, while also recommending an alternative 11% yielding closed-end fund.

Analysis

The current market environment, characterized by over 76% of S&P 500 stocks holding 'Buy' ratings from Wall Street analysts, presents a backdrop for a contrarian investment approach focused on out-of-favor, high-yielding equities. National Storage Affiliates Trust (NSA), a self-storage REIT yielding 6.6%, shows improving operational metrics like move-in rates and street rates, but faces headwinds from peer-trailing same-store net operating income (SSNOI) and funds from operations (FFO) growth, and a tight dividend payout ratio at 97% of its 2025 FFO estimates, with its stock trading at approximately 15 times these estimates. CNA Financial (CNA), an 8.1% yielding P&C insurer predominantly owned by Loews (L), exhibits a positive outlook with a rising regular dividend (currently 3.9% yield) supplemented by historically consistent special dividends (adding 4.2% from the 2025 payment); despite a lone 'Sell' rating, which the article posits may be due to analyst resource allocation rather than fundamental weakness, its long-term operational trends are viewed favorably, though profit growth has been inconsistent. Conversely, Cricut (CRCT), with a 15.5% yield largely from special and newly initiated regular dividends, faces significant fundamental challenges, including a 7% revenue decline in 2024, negative demand and engagement trends, high promotional spending, and expected profit declines over the next two years, making its dividend policy appear misaligned with its deteriorating growth prospects and potential tariff impacts. Goldman Sachs BDC (GSBD), yielding 16.5% based on announced 2025 payouts, recently cut its regular dividend by nearly 30% (from 45 cents to 32 cents per share) due to quality issues such as high non-accruals and declining net investment income, despite now offering a temporarily higher total payout via special (16 cents for Q1-Q3) and supplemental (5 cents for Q2) dividends; while it trades at a 17% discount to NAV and has limited tariff exposure for its portfolio companies, its history of underperformance within the BDC sector and the sustainability of its current distribution level raise concerns. The article ultimately suggests that while the contrarian premise of seeking value in disliked stocks is inviting, fundamental soundness remains paramount, as evidenced by its concluding pivot towards a preferred, actively managed 11% yielding closed-end fund.

Key Decisions for Investors

• Investors exploring a contrarian approach to high-yield, analyst-neglected equities should prioritize rigorous due diligence on fundamental strength and dividend sustainability, as elevated yields frequently correlate with heightened underlying risks.
• For National Storage Affiliates Trust (NSA), closely monitor for sustained FFO growth improvements and a more comfortable dividend coverage ratio before considering new positions, given its current fair valuation and very high payout ratio.
• CNA Financial (CNA) could be considered by investors tolerant of its 'lumpy' base-plus-special dividend structure and minimal analyst coverage, should its favorable underlying business trends persist, recognizing the conglomerate ownership by Loews.
• Extreme caution is advised regarding Cricut (CRCT); its exceptionally high dividend yield appears precarious against a backdrop of declining revenues, negative engagement metrics, and anticipated profit erosion, suggesting a potential value trap.
• Potential investors in Goldman Sachs BDC (GSBD) must carefully weigh its attractive discount to NAV and temporarily inflated yield against its track record of industry underperformance, the recent cut to its regular dividend, and persistent concerns over asset quality and net investment income stability.