When a frothy stock market threatens your retirement income, four overlooked dividend giants offer yields that dwarf what most investors settle for, and one REIT has refused to cut its payout through every financial storm since 2009.
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Investors love dividend stocks because they provide dependable passive income streams and an excellent opportunity for solid total return. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or portfolio consists of income and stock appreciation. At 24/7 Wall St., we have focused on dividend stocks for over 15 years because, despite the stock market’s ups and downs, many people need reliable passive income streams to supplement their income from employment or other sources such as Social Security and pensions.
While interest rates have risen over the past year, many quality ultra-high-yield names have traded higher, so yields have fallen below 7%. We screened our 24/7 Wall St. ultra-high-yield dividend stock database for quality stocks with long-term track records that Boomers and retirees with a higher risk tolerance can load into tax-sheltered accounts, with dividends pouring in while potentially generating solid total return. Four companies hit our screens that we have followed for years, and all make sense now for growth and income investors looking for an edge in a frothy, overbought stock market.
Why Do We Cover Ultra-High-Yield Dividend Stocks?
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While these stocks aren’t for everyone, investors building strong passive income streams can do exceptionally well with some of these top companies in their portfolios. Paired with more conservative blue-chip dividend giants, investors can use a barbell approach to generate substantial passive income.
Ares Capital
Ares Capital (NASDAQ: ARCC | ARCC Price Prediction) specializes in providing financing solutions for the middle market, and with seven analysts rating it a Buy and a 9.76% dividend yield, it’s a solid idea now. This high-yielding business development company (BDC) specializes in acquisitions, recapitalizations, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions for middle-market companies. It is widely considered one of the highest-quality BDCs due to its massive scale and defensive track record through multiple economic cycles. The company has a long history of regular payouts and supplemental distributions since its 2004 market entry.
It also makes growth capital and general refinancing. It prefers to invest in companies in basic and growth manufacturing, business services, consumer products, healthcare products and services, and information technology.
The fund will also consider investments in industries such as:
Restaurants
Retail
Oil and gas
Technology
It focuses on investments in the Northeast, Mid-Atlantic, Southeast, and Southwest regions from its New York office; the Midwest region from its Chicago office; and the Western region from its Los Angeles office.
The fund typically invests between $20 million and $200 million, with a maximum of $400 million, in companies with annual EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million.
The fund invests through:
Revolvers
First-lien loans
Warrants
Unitranche structures
Second-lien loans
Mezzanine debt
Private high yield
Junior Capital
Subordinated debt
Non-control preferred and common equity
The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically acquires stressed and discounted debt positions.
Ares Capital prefers to act as an agent and lead transactions in which it invests. The fund also seeks board representation in its portfolio companies.
MPLX
MPLX (NYSE: MPLX) is a diversified, large-cap master limited partnership formed by Marathon Petroleum. This company is a top holding in the Alerian MLP Energy exchange-traded fund and pays a healthy 7.15% dividend. The company primarily transports crude oil and refined products, with terminals in the U.S. Midwest and Gulf Coast regions, and gathers and processes natural gas in the Northeast, following its 2015 acquisition of MarkWest Energy. MPLX owns pipeline and logistics infrastructure primarily backed by long-term, fee-based contracts with its parent company, Marathon Petroleum. Management is targeting a 12.5% distribution growth rate and maintains a highly comfortable 1.3x distribution coverage ratio.
The company’s assets include:
Network of crude oil and refined product pipelines
Inland marine business
Light-product terminals
Storage caverns
Refinery tanks
Docks
Loading racks and associated piping
Crude and light-product marine terminals
MPLX also owns crude oil and natural gas gathering systems, as well as pipelines, natural gas, and NGL processing and fractionation facilities in key U.S. supply basins.
Starwood Property Trust
This off-the-radar global real estate giant boasts a 12.30% dividend yield and is led by real estate legend Barry Sternlicht. Starwood Property Trust (NYSE: STWD) operates as a real estate investment trust (REIT) in the United States, Europe, and Australia. It is the largest commercial mortgage REIT in the U.S. and has not lowered its dividend since its inception in 2009. It has navigated the current high-interest-rate real estate environment by shifting heavily into infrastructure lending and triple-net lease properties.
The company operates through four segments. The Commercial and Residential Lending segment:
Originates, acquires, finances, and manages commercial first mortgages
Non-agency residential mortgages
Subordinated mortgages
Mezzanine loans
Preferred Equity
Commercial mortgage-backed securities (CMBS)
Residential mortgage-backed securities
The Infrastructure lending segment originates, acquires, finances, and manages infrastructure debt investments. The Property segment primarily develops and manages equity interests in stabilized commercial real estate properties, including multifamily and net-leased commercial properties, held for investment purposes.
The Investing and Servicing segment:
Manages and works out problem assets
Acquires and contains unrated, investment-grade, and non-investment-grade rated CMBS comprising subordinated interests of securitization and re-securitization transactions
Originates conduit loans to sell these loans into securitization transactions and acquire commercial real estate assets, including properties from CMBS trusts
Universal
This somewhat off-the-radar company is another of the world’s leading tobacco merchants, operating as a global tobacco leaf supplier rather than a cigarette manufacturer. Universal (NYSE: UVV) has reported strong demand, has been in business for almost 150 years, and pays a 7.36% dividend. Universal processes and supplies leaf tobacco and plant-based ingredients worldwide. It operates as a global leaf tobacco supplier, using a remarkably stable, slow-moving industry model to fund payouts. The company also has Dividend King status, with 50+ consecutive years of annual dividend increases.
The company operates through two segments:
Tobacco Operations
Ingredients Operations
It procures, finances, processes, packs, stores, and ships leaf tobacco for sale to manufacturers of consumer tobacco products. The company:
Contracts, purchases, processes, and sells flue-cured, burley, and oriental tobaccos that are primarily used in the manufacture of cigarettes
Dark air-cured tobaccos are used to manufacture naturally wrapped cigars, cigarillos, and smokeless and pipe tobacco products
Universal also provides value-added services, including:
Blending, chemical, and physical tobacco testing
Service cutting for various manufacturers
Manufacturing reconstituted leaf tobacco
Just-in-time inventory management services
Electronic nicotine delivery systems
Customer smoke testing services
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