More Bad News From Freddie Mac

Freddie Mac (FRE), a government-sponsored mortgage finance company, said yesterday that it cut its fourth-quarter dividend in half to 25 cents, for a 3.89 percent dividend yield. In addition, the company will sell $6 billion of preferred stock to help shore up its balance sheet.

Before the dividend cut, FRE's dividend yield had been pushed up to almost eight percent by its collapsing stock price. When yields surge to historical highs because of falling prices, investors should beware that a dividend cut is a possibility.

So beware of high yields of other distressed mortgage-related companies. They might be a signal of more bad news to come.

Related Articles:

Do Not Be Tempted by Extra High Dividend Yields
Falling Prices Push Up Dividend Yields
Freddie Mac Is in Free Fall

Posted November 28, 2007.