Buying distressed stocks for yield isn't for everyone, but it can be rewarding if you recognize what you're buying and understand the risks. Take struggling Newell Brands (NWL) which owns a who's who of consumer brands, from Rubbermaid to Elmer's Glue.
The company exists in its current form thanks to its predecessor Newell Rubbermaid's $15 billion acquisition of Jarden Corp., which operated such well-known consumers brands as Yankee Candle and Sunbeam. But suffice to say that the two companies' 2015 marriage hasn't work out well, with the combined entity's share price down some 60% since June 2017.
Carl Icahn and other activist investors have gotten heavily involved as a result, and the company has recently been selling off businesses and paying down debt to please them. For example, NWL last Friday agreed to sell hair-styling-device company Goody Products for an undisclosed sum. (If you went to elementary school in the 1970s, you likely carried a Goody comb in your back pocket.)
And that's just Newell's latest divestiture. The company also recently completed sales of Waddington Products and Rawlings Sporting Goods, and intends to ditch its Jostens jewelry business and other lines going forward. All told, NWL expects $10 billion in after-tax proceeds from divestitures.
A Sliding Share Price (But a Nice Yield)
In the meantime, all of the damage done to the stock -- including a 22% drop last week on the back of a poorly received earnings -- has given Newell a very compelling 4.3% dividend yield.
Now admittedly, such yields are meaningless if there's a dividend cut on the horizon, but that doesn't appear to be the case here (at least at this point). After all, Newell's 23-cent-per-share quarterly dividend and analysts' recently reduced 2019 consensus earnings ($2.30 a share) only equates to a 40% payout ratio.
The company has also indicated that it plans to use proceeds from asset-sale proceeds to not only pay down debt, but also to buy back stock. In fact, management recently increased Newell's share-repurchase authorization to $3.6 billion from a previous $1.1 billion to $3.6 billion. That's a positive.
Still, markets love to hate this stock. Tariff worries have done a lot of damage and might continue to do so, but I believe this is all overblown. So after watching NWL since last year, I took an initial position last week -- albeit with the realization that the stock might fall further given all of the negativity currently surrounding it.
Now in such cases, I typically take a small opening position and then add opportunistically. But for now, I'm happy with the stock's yield, as well as with its prospects for total return if and when Newell can get its act together.
True, Newell isn't exactly a "widows and orphans" stock these days. But it could play a role in the portfolios of income investors willing to take on a bit more risk.
(This column has been updated. A version of this column originally appeared Aug. 13 on Income Seeker, our premium site for investors who focus on bonds, dividend stocks and other income products. Click here to get great columns like this every trading day.)