This has been a roller-coaster year for investors. The S&P 500 index got off to its worst start since 1970, and bottomed out (so far) in mid-June. But it has spent much of the last two months clawing back at least some of those losses.
While such downturns can be painful for investors, market sell-offs also present opportunities to buy good companies at lower prices. One category of equity that offers you a particularly good way to take advantage is dividend stocks.
Companies that have histories of paying dividends regularly tend to be consistently profitable and have strong balance sheets -- allowing them to better weather economic contractions and recessions. If you have $1,000 to put into your portfolio now, I'd suggest splitting it among these three stocks that today offer ultra-high dividend yields of 5.3% or more.
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1. Owl Rock Capital: 9.17% dividend yield
Owl Rock Capital (OBDC -0.32%) provides loans to middle-market companies that have earnings before interest, taxes, depreciation, and amortization (EBITDA) in the $10 million to $250 million range and annual revenues of $50 million to $2.5 billion.
It's a business development company (BDC), so it must follow tax rules similar to those imposed on real estate investment trusts (REITs). One of those rules requires BDCs to pay out 90% of their taxable income annually in the form of dividends -- which explains its high yield.
Owl Rock believes that institutional investors neglect middle-market companies and instead focus on lending to the biggest companies. While the loans it makes could be risky, 73% of its portfolio is made up of first-lien loans -- i.e., loans that get paid first in the event of a liquidation -- and 14% are second-lien loans.
Through the first six months of 2022, Owl Rock's total investment income grew by 14%. It also saw unrealized losses on its portfolio of $238 million due to market volatility and widening credit spreads.
While there is risk in investing in a BDC, Owl Rock expects broadly rising interest rates to result in it collecting higher net interest income. In its second-quarter 10Q regulatory filing, the company said it expects that a 100 basis point increase in interest rates would increase its interest income by $115 million and its net income by $78 million. The company also believes that market volatility creates excellent opportunities to lend to middle-market companies as banks pull back on providing those businesses with financing.
2. Moelis & Company: 5.35% dividend yield
Moelis & Co. (MC 2.56%) advises clients on mergers and acquisitions, debt restructuring, and raising money through capital markets.
The company experienced a slowdown in business this year due to a broad downturn in M&A deals and equity offerings. Through the first six months of 2022, its revenue fell 13%, while an uptick in expenses caused net income to fall by 31% from last year. Despite this, the company is in a strong capital position, with $277 million in cash and liquid investments, and no debt.
Moelis & Co. is also committed to returning all its excess cash to shareholders, which results in attractive payouts when times are good. Last year, it declared two special dividends totaling $4.50 per share. Combined with its regular dividend, its payouts yielded 11% based on its year-end closing price of $62 per share.
Armed with a strong balance sheet, the firm is ready to take advantage of what the market throws at it. If economic conditions deteriorate further, demand could pick up for its debt restructuring business, and if conditions improve, demand for its investment banking services could rebound.
Either way, Moelis & Co. is a solid company that's committed to returning its excess profits to shareholders.
3. New York Community Bancorp: 6.54% dividend yield
New York Community Bancorp (NYCB 1.12%) has 230 branches across New York, New Jersey, Florida, Ohio, and Arizona. It primarily lends money to buyers of multifamily properties in New York City, focusing on non-luxury, rent-regulated markets.
One of the bank's biggest strengths is its high-quality loans. Its portfolio of loans has outperformed those of its banking peers over the past 30 years. And while New York Community Bancorp hasn't increased its dividend in several years, its payout gives it a yield that exceeds those of nearly all of its peers.
The bank is awaiting regulatory approval of its $2.6 billion acquisition of Flagstar Bancorp, which would help expand its deposit base and make it a top-six mortgage banker in the U.S. Assuming the merger is approved, New York Community Bancorp's growing business and high dividend yield could make it another solid income stock for your portfolio.
