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What is a high yield stock? Some would say that a dividend yield greater than 7% qualifies, while others may say that 10% is the threshold. I doubt anyone disagrees with that. Amedeo air four more (LSE: AA4) qualifies. Analysts calculate that it will reward shareholders with a return of 15.1% in 2023 and 17.5% in 2024.
If I see a mind-blowing potential return like that, I’m always interested. Could seriously boost my portfolio performance if realized. Therefore, it is worth taking a closer look.
Flying high
Amedeo, a specialized fund, listed on the London Stock Exchange in 2015. He took the cash raised from the equity (and debt) issue, bought two A380 planes, and leased them to Emirates. By 2018 and after further capital and debt increases, it had amassed a fleet of 14 aircraft, of which eight were leased to Emirates, two to Etihad and four to Thai Airways.
Etihad bought its two leased aircraft outright on February 24, 2020. That was lucky as, within weeks, flights were canceled around the world due to the coronavirus pandemic. The cash came in handy as the company had to start giving vacations in lease payments and restructure some entirely. Still, it didn’t stop it from canceling all capital returns to its shareholders.
High Yield Stock Warning
The company was confident enough to start paying a quarterly dividend of 1.25 pence on January 31, 2022. This increased from 1.5 pence to 1.75 pence from April 2023. That’s not too far from the initially planned dividend of 2.06 pence, which analysts believe the company will hit again in 2024.
Although Amedeo’s share price is almost double what it was two years ago, it is a third below its pre-pandemic value and half of what it was at listing. Investors seem to lack faith.
Thai Airways filed for bankruptcy during the pandemic and remains in the hands of the administrators. Your lease payments are a big risk. If it’s lost, I think Amedeo would have a hard time finding a new tenant for those four planes. The airline industry has yet to recover, and that is particularly true for the long-haul sector. Amedeo’s aircraft are all long-haul models.
The company’s most recent statements speak of depressed long-haul aircraft prices. Since Amedeo is highly leveraged, since he financed the purchase of the planes with almost twice as much debt as equity, in the event of a forced sale of planes, shareholders will not be the winners.
Amedeo Air Four Plus actions
I think investors are right to be cautious with this stock. His high performance is probably right where it needs to be given the risks. There are also a few other curiosities with this stock that I don’t like very much.
The company returns capital to shareholders through mandatory share redemptions. There have been three of these so far, the last one earlier this month. The company then recouped one share for every eight it owned for 64.5 pence. Now that price was well above the market price of around 42p, and in the past it has always been true, though perhaps not as pronounced. Still, I am not comfortable with this mechanic and generally am not going to buy these stocks for my Stocks and Stocks ISA and will look elsewhere.
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