I like high-yield stocks, so I should love a 17.5% one, right?

What are high yielding stocks? Some would say that a dividend yield of more than 7% qualifies, while others might say that 10% is the threshold. I doubt anyone would disagree Amedeo Air Four Plus (LSE: AA4) qualified. Analysts expect it to reward shareholders with returns of 15.1% in 2023, and 17.5% in 2024.

If I see an eye-popping potential return like that, I’m always interested. It can seriously improve portfolio performance if realized. So, it’s worth taking a closer look.

Fly high

Amedeo, a specialist fund, is listed in London Stock Exchange in 2015. It took the cash raised from the equity (and debt) issue, bought two A380 aircraft, and leased them to Emirates. In 2018 and after raising equity and debt again, it has assembled a fleet of 14 jets of which eight are leased to Emirates, two to Etihad, and four to Thai Airways.

Etihad purchased two leased aircraft outright on February 24, 2020. Fortunately, for a few weeks, flights were canceled worldwide due to the coronavirus pandemic. The cash is useful because the company needs to start giving rent payment holidays and restructure everything. However, it does not stop canceling all returns of capital to shareholders.

the danger of high-yield stocks

The company is confident enough to start paying a quarterly dividend of 1.25p on 31 January 2022. This is increased from 1.5p to 1.75p from April 2023 onwards. This is not far from the planned dividend of 2.06p, which the company’s analysts think will be paid back in 2024.

Although Amedeo’s share price has almost doubled from two years ago, it is a third below the pre-pandemic value and half of the list. Investors seem to lack faith.

Thai Airways declared bankruptcy during the pandemic and is still in the hands of administrators. The rent payment is a big risk. If it goes away, I think Amedeo will struggle to find a new tenant for the four planes. The aviation industry has yet to bounce back and this is especially true for the long-haul sector. Amedeo aircraft are all long range models.

The company’s latest statement on depressed long-haul aircraft prices. Because Amedeo has so much leverage, because he financed the purchase of the plane with twice as much debt as equity, if the plane is forced, the shareholders will not be the winners.

Share Amedeo Air Four Plus

I think investors should be careful about this stock. The high yield may be where the risk is worth. There are also some other curiosities with this stock that I am not too keen on.

Companies return capital to shareholders through mandatory share redemptions. There have now been three, the most recent being earlier this month. Then the company returned one share for every eight it owned for 64.5p. Now that price is about 42p above the market price, and in the past that would have been true if it might have gone without saying. Still, I am not comfortable with this mechanic and the balance, I will not buy this stock for my Stocks and Shares ISA and will look elsewhere.