Why a Remarkable High-Yield Dividend Stock Isn't Always Worth It
If you've ever seen an old-timey cartoon, you're doubtlessly familiar with the sight of dollar signs forming in a greedy character's eyes when they spot a lucrative (and often ill-advised) opportunity. Unfortunately, disaster tends to follow their attempts at realizing their ambitions, and often predictably so. Stocks with high dividend yields tempt investors to behave in much the same way, which often leads to them experiencing cartoonishly bad results when they do.
Meet AFC Gamma (NASDAQ: AFCG), a marijuana financing company with a ridiculously high forward dividend yield of around 13.5%. AFC's high dividend yield means that investors won't need to spend much to build a formidable passive income stream. But, investors should recognize that high yields are usually indicative of high levels of risk, and there are upcoming headwinds that might cause problems for this company relatively soon. Let's explore the trade-off between the stock's risks and its prospective returns so that you'll know whether to invest or look elsewhere.
Cannabis businesses need capital to grow, but they have a hard time finding it from traditional financial institutions like investment banks due to the regulations that are part of federal marijuana prohibition. AFC Gamma solves that problem for them by offering them loans that are secured with claims to their real estate. If customers default, the company gets to keep their equity. If they pay up, and so far 100% of its debtors have, the earnings are then distributed to shareholders as a dividend.
Source Fool.com
