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%.
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 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!