Most investors realize that Altria Group (NYSE:MO) and AT&T (NYSE:T) pay big quarterly dividends. However, there is an entire group of unknown stocks that invest in niche areas, and they are paying large payouts. Not only will the ideas in this article bring investors the income needed, but they will also add diversification to the portfolio.

Private Equity Firms
Ares Capital Corp (Nasdaq:ARCC) is a private equity firm that specializes in middle market companies through acquisition, mezzanine loans, restructuring and buyouts. The company typically invests between $20-200 million in firms with EBITDA between $10-250 million. Year-to-date, the stock is up about 20%, not including the annual dividend yield of 9.2%.

IN PICTURES: 5 Reasons Why Companies Care About Their Stock Prices

PennantPark Investment Corp (Nasdaq:PNNT) is a business development firm that makes direct and mezzanine loans to middle-market companies. The firm looks to invest between $10 and $50 million in it companies. The current dividend is 10%, and the stock is up 12% in 2010. Some of its portfolio companies include an A/V equipment maker, health care IT, and energy engineering firm. Compass Diversified Holdings (Nasdaq:CODI) is a public investment firm specializing in acquiring controlling stakes in small-to-middle market companies. The stock pays a dividend of 9%, and it is up 21% year-to-date. Companies in their portfolio include Fox Racing Shox, American Furniture Manufacturing and Liberty Safes.

Energy MLPs
Energy master limited partnerships (MLPs) have been well known to the pure income investors for years. Only recently have they become popular with growth investors, due to their big moves in stock price, along with the high dividend payouts. Breitburn Energy Partners LP (Nasdaq:BBEP) is an energy exploration and development company that focuses on several areas of shale throughout the U.S. The stock began the year with a rally, and is now up 62% for the year, not including its current 9.0% dividend yield. (Drill down into financial statements to tap into the right companies and let returns flow; see Unearth Profits In Oil Exploration And Production.)

Cheniere Energy Partners LP (NYSE:CQP), through its subsidiary, Sabine Pass LNG LP, owns and operates the Sabine Pass liquid natural gas terminal in Louisiana. The stock MLP currently pays an annual dividend of 9.4%.

American Capital Agency Corp (Nasdaq:AGNC) is a real estate investment trust (REIT) that invests in collateralized mortgages and agency pass-through securities that are guaranteed by a U.S. government agency. Based on the last 12 months of dividends, the REIT is currently yielding a whopping 19.4%. Year-to-date the stock has appreciated by 11%. Hatteras Financial Corp (NYSE:HTS) is a mortgage REIT that invests in adjustable single-family residential mortgage pass-through securities guaranteed by a US government agency. The current dividend is 15% and the REIT is up 5% in 2010.

The Bottom Line
Two words of caution when investing in high-yielding vehicles: First, the price of the investment could move dramatically to the downside, and therefore a 40% drop in the price of the stock could wipe out a 19% dividend yield. Second, the dividend payouts are not guaranteed, and could change at any time.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this article, risk free!

Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  7. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  8. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  9. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center