3 Rock-Solid Dividend Stocks to Buy Today

Source: Flickr/401(K) 2012.

With interest rates at rock-bottom levels, investors everywhere are searching for investments with stable dividends. Many traditional dividend-paying stocks, such as utilities and REITs, have been bid up and now no longer offer significant yields anymore.

If that in mind, we asked three of our top financial contributors to scour the investment-universe to find three stocks with sporting big dividends.

Matt Frankel: As far as rock-solid, high-yielding stocks go, it's tough to beat Prospect Capital (NASDAQ: PSEC  ) . This business development company, or BDC, makes its money by lending to private businesses. BDCs must pay out most of their profits to avoid corporate taxation, which explains why they can offer such attractive yields.

Prospect pays a yield of around 12.2% annually, a type of yield normally seen in mortgage REITs, whose dividends have been inconsistent at best lately. Unlike these, Prospect has already declared its monthly dividends through June and plans to declare its payouts through September before the end of next month. Not only that, bit it's also increasing the payout slightly every month.

Prospect has also taken steps to diversify its holdings throughout the past few quarters. In addition to accelerating its loan originations to businesses, Prospect has been acquiring other types of assets, such as rental real estate and equities in the businesses to which it lends money. With a consistent and stable yield of more than 12%, Prospect is definitely worth checking out for any income portfolio.

Patrick Morris: There are likely going to be companies with bigger dividend yields on this list, but it would be tougher to find one that is a better investment than New York Community Bancorp (NYSE: NYCB  ) . Although banks often scare many people away, consider that New York Community Bancorp has paid out its dividend of $0.25 per share for the past 40 consecutive quarters. In fact, it has paid out a dividend each quarter since the middle of 1994, when it went public. With that streak in mind, you'd be hard pressed to find a more consistent and reliable dividend in the financial sector.

Beyond the simple mechanics of its impressive 6% dividend yield is that of its business. Its management has done an outstanding job of allocating capital and making intelligent loans in the less risky, but highly profitable commercial and multi-family real estate industries.

Yet not only is its ability to generate income impressive, but so, too, is its ability to manage the cost associated with bringing those dollars in. Consider its phenomenally low efficiency ratio -- which measures the cost of every dollar of revenue -- stood at 42.7% in 2013, well ahead of even some of the best run banks like Wells Fargo (58.3%) and US Bancorp (52.4%).

Add in its strong return on averages assets and tangible equity of 1.1% and 15%, respectively, plus its reasonable valuation with price to tangible book value standing at 2.2, you'd be hard pressed to find a better investment in a company with a great dividend than that offered by New York Community Bancorp.

Jordan Wathen: One of my favorite high-yielding investments is Main Street Capital (NYSE: MAIN  ) , another business development company. I'm not alone in liking Main Street Capital -- it trades at 1.7 times book, making it one of the priciest in the industry.

What I find most attractive about Main Street Capital is its low cost structure. Unlike most in its sector, the company is internally managed, so it doesn't come with the typical 2-and-20 fee structure in which 2% of assets and 20% of returns are paid out to an asset manager. Instead, it pays its employees internally. Costs waver at 1.7% of assets annually.

Main Street Capital is a "jockey" play.

The company's small size also gives it two big advantages. First, it makes full use of inexpensive leverage from the Small Business Administration, which gives it access to long-term fixed-rate debt at a cost of roughly 4.3% per year. (Sidebar: The SBA awarded it the coveted title of "Small Business Investment Company of the Year" award in 2011.) Secondly, as a smaller BDC, it invests in the smallest of middle-market companies. Main Street Capital's lower middle market portfolio yields more than 14%, much higher than the yields of its rivals, which invest in larger middle-market companies where markets are more efficient.

Finally, the dividend is very attractive. Main Street Capital expects to pay out more than $2.50 per share in distributions to shareholders in 2014, giving it an implied yield of 7.35%, despite its high price-to-book value. With insiders owning more than 7% of the company, I have confidence that the management will make investments as if it were their own money at stake -- a key ingredient of any "jockey" play.

9 more great dividend stocks
One of the dirty secrets that few finance professionals will openly admit is that dividend stocks as a group handily outperform their non-dividend-paying brethren. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.


Read/Post Comments (4) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 02, 2014, at 2:43 AM, ddemee01 wrote:

    I liked your articles on the BDC's. I looked on Morningstar.com over the last 5 years and PSEC, NYBC didn't beat the S&P 500 in a graph. MAIN was the winner by a huge margin, paying out $0.16 every month. Since 2009, MAIN & TCAP have the most consistent returns. Having High Dividend Yields doesn't guarantee high growth. Another choice might be Blackstone Group L.P. BX, an MLP. For the 4th quarter, BX net income rose 76% from same quarter in 2012 and raised their dividend yield to 7.08%, div. pd. from $0.23 to $0.58, a huge increase. Check it out!

    D. King

  • Report this Comment On February 04, 2014, at 9:30 AM, oldfart65 wrote:

    Own NYCB for 6 months for dividend. 6.5% yield AND was up 11% at end of year (beat S&P 500). Well run bank but some risk in payout ratio of virtually 100%. Bought PSEC few weeks ago w/11% yield-put an alert on stk if it falls. The BDC group will generally not give you much capital appreciation but has high dividends. Will probably be buying ARCC, another BDC shortly with 9% yield.

    BDC's are hard to understand. VERY GOOD SITE TO LEARN ABOUT THIS GROUP IS-www.bdcbuzz.com

  • Report this Comment On February 04, 2014, at 2:30 PM, sagitarius84 wrote:

    I am not a big fan of chasing the highest yielding stocks. I would much rather buy a company like Coca-Cola that yields 3% today, and enjoy doubling of my dividend income every 7 - 10 years.

    http://www.dividendgrowthinvestor.com/2014/01/coca-cola-wide...

    I also like having Warren Buffett as my partner in this investment.

  • Report this Comment On February 04, 2014, at 3:57 PM, oldfart65 wrote:

    To Sagitarius84: I would normally agree w/you until I looked up the facts. PSEC (a BDC) had adjusted price of $5.70 ten years ago and $11.08 now for CAGR of 6.53%. BUT it paid $11.95 in dividends during same period.

    KO had CAGR during same time of 7.17% but only paid $7.90 in dividends. Stk price went from $18.62 to $37.20.

    If dividends are included KO has cagr of 9.25% and PSEC is 15%. I think that proves Warren's point that dividends DO matter. You can run it on MAIN as I didn't but suspect the same would hold true.

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