Should You Buy the 3 Highest Paying Dividend Stocks on the Nasdaq?

Generous dividends can help you build long-term wealth. At the same time, excessive generous dividend yields can be a sign of deep-seated financial struggles.

The Dogs of the Dow investment strategy is based on quality business requirements Dow Jones Industrial Average (^DJI 0.72%) If one of the 30 powerful Dow stocks is down, sending share prices lower and effective dividend yields higher, that’s surely a temporary problem. Buy while the dividend is high and wait for the Dow component to move past that speed.

But what if you apply the same philosophy to a much wider universe of stocks? There are 1,730 stocks on Nasdaq (NDAQ 0.93%) stock market with a market capitalization of $200 million or more. Are the top-yielding dividend policies in this large group green flags for fantastic buying opportunities — or red flags that mark companies in deep trouble?

Let’s find out. Here are the three richest dividend yields on the Nasdaq today, each with quick analysis to separate buying opportunities from danger zones.

DouYu International: 62.9% dividend yield

Specialist in live-streaming e-sports DouYu (TWO 2.23%) is a special case. The Chinese company is not in the habit of paying quarterly dividends. But it issued a special dividend on September 3 of $9.76 per American depositary share (ADS). This is 52% of DouYu’s price per ADS on the eve of that payment.

The company took this extraordinary action to give shareholders something to celebrate despite the strong economic pressure on DouYu’s business operations. Revenues have been on a downward trend for almost three years, and the final earnings are printed in red ink.

DouYu’s incredible dividend yield is a one-of-a-kind item, not a reliable payout policy. You shouldn’t expect the company to maintain this downright unreasonable yield. Instead, you should question why DouYu felt compelled to share so much cash with shareholders in 2024.

ADS enjoyed a short period of high prices, starting with the dividend announcement and ending just as the payouts were issued. The market price is down 96% from its all-time high since early 2021.

The special dividends were paired with a refreshed buyback program. In the spring of 2024, DouYu rebalanced the ADS-per-share-support ratio on the Hong Kong stock exchange — effectively the same as a reverse stock split to support a sliding share price.

These are not the actions of a thriving business facing unfair pressure from investors. I would be hesitant to pick up DouYu stubs today despite the massive price cuts. The company needs to restart stagnant revenue growth and start making money again. You may want to dig deeper into DouYu’s story, but look away from the illusion of a monumental dividend yield to take a deeper look at other financial metrics. This is not a tempting investment idea for “Nasdaq dogs”.

Icahn Enterprises: 37% dividend yield

This is a tricky one.

The investment empire of billionaire Carl Icahn, Icahn Enterprises (IEP 5.06%)shows a dividend yield of 37% in many data sources. All these sources report an asset price of $10.80 and a constant quarterly payment of $1.00 per deposit unit (the equivalent of one share in a limited partnership). That makes sense.

But the Icahn organization’s limited limited partnership (MLP) doesn’t technically pay dividends to shareholders. Instead, it issues quarterly cash distributions to unitholders, with some subtle differences. There are tax advantages, a complex reduction in the initial cost basis of the unitholders as they collect dividends and other quirks. These payments are similar to dividends, but not exactly the same.

That said, Icahn’s business does indeed offer quarterly payouts of $1.00 per unit, resulting in this massive return figure, with MLP caveats and asterisks galore. However, the estimated annual payout of $4.00 per unit is down from $6.00 in 2023.

The MLP structure comes with generous tax incentives, but also requires Icahn Enterprises to pay all “available cash” to unit owners. In other words, those hefty payouts will keep coming as long as Icahn’s business empire makes cash profits. The yield is high these days as unit prices have fallen 48% in the past year.

Carl Icahn runs a risky business. He invests money in distressed businesses with low valuations and then tries to help his targets execute a turnaround. Recently, Icahn Enterprises began short-selling some stocks — a potentially lucrative but also risky idea. And many of those high-stakes bets have resulted in painful losses lately.

The MLP itself sells more units to raise additional cash and keep the business going. Very high dividend yields often belong to troubled businesses. The same idea applies to MLP units and distribution yields. I see a struggling investment firm here. While I wish Carl Icahn well in his activist investing ventures, I think it’s best to watch this drama from the sidelines.

Torm: dividend yield of 19.1%.

Finally, let’s check Storm (TRMD 1.07%). As the operator of around 90 oil and gas tankers, the company is facing radical changes in its target market as alternative energy sources and electric vehicles reduce the importance of fossil fuels.

But Torm is doing well anyway. Topline sales rose 37% in three years, while free cash flow tripled. Since Torm’s official policy is to “distribute excess liquidity to shareholders on a quarterly basis,” that means its payouts have also increased.

I admit that oil companies are far from my area of ​​expertise, but I appreciate this company’s strong cash generation and generous dividend strategy. I am tempted to leave you with a third “not a buy” rating given the anti-oil tendencies of global market trends. Still, perhaps a leader in this endangered industry could continue to collect solid cash flows and pay generous dividends for a few more years.

Don’t bet your farm on this dead-end idea. However, Torm could be a solid investment in the shorter term. Just be prepared to ditch this stock if and when oil starts to lose its economic importance. It’s a half-assed “buy” at best. At the same time, it is the most optimistic recommendation on this list.

I’m pretty sure you’d see a lot of downside if I kept going down this list of ultra-high dividend yields on the Nasdaq. The dividend-based “dogs of the Dow” strategy doesn’t seem terribly useful when applied to a longer list of stocks with lower barriers to entry.