3 Rock-Solid Dividend Stocks to Buy Today

Looking for passive income? Look no further than these three stocks.

Feb 1, 2014 at 12:00PM


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.

Jordan Wathen has no position in any stocks mentioned. Matthew Frankel owns shares of Prospect Capital. Patrick Morris owns shares of US Bancorp. The Motley Fool recommends and owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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