Some of the best-paying dividend stocks aren't the super-popular companies getting all the attention from the mainstream media. They are the under-the-radar stocks that often get overlooked by investors despite paying big dividend yields with plenty of room to grow.
Three stocks that aren't on the radar of many investors but have all the workings of big moneymakers are Blackstone (BX -0.34%), Hannon Armstrong Sustainable Infrastructure Capital (HASI -2.00%), and Rithm Capital (RITM -0.09%). Let's take a closer look at these dividend stocks and why three Motley Fool contributors feel they could make you richer.
This alternative asset manager is a major steal right now
Liz Brumer-Smith (Blackstone): Recent market volatility and general economic uncertainty have driven a lot of investors to seek returns from alternative assets like real estate, public and private debt equities, and life science investments. Rather than investing in these assets directly, which requires a lot of money and a level of sophisticated knowledge, investors are choosing alternative asset management companies like Blackstone to do the job for them.
Blackstone is one of the largest alternative asset management companies in the world, with $951 billion in assets under management (AUM). The company has been absolutely crushing it over the last few years with its latest quarterly earnings exceeding analysts' expectations.
The company's main income is from its management fees. The more assets it manages for investors, the more fees it earns. Its fee-related earnings (FRE) grew 51% year over year while its total assets under management grew by $11 billion from the quarter prior. This impressive jump in FRE was largely related to its fee-related performance revenue, which is a bonus the company earns if it exceeds projected performance levels for certain funds and investments.
Given the state of the stock market and economy, there's a good chance its AUM and fee-related earnings will keep growing as investors seek out stable returns. Even if the market worsens further, Blackstone is well-versed in investing in down markets. The company managed assets quite profitably during the Great Recession.
Despite the company's solid performance, the stock is down 31% year to date with a forward price-to-earnings ratio of 17.5, suggesting that right now is a favorable time to buy in. Plus its dividend yield is 5.5%, three times higher than the S&P 500.
Saving the planet, one tasty dividend at a time
Kristi Waterworth (Hannon Armstrong Sustainable Infrastructure Capital): The whole point of investing is to make your money make more money, but it never hurts if you can do that with a stock that also makes you feel a little better about the future. Hannon Armstrong Sustainable Infrastructure Capital is a real estate investment trust (REIT) that provides leases and funding for green infrastructure projects like solar farms, wind farms, and even stormwater management projects.
As of the end of 2021, it held approximately $3.6 billion worth of these projects on its balance sheets and managed an additional $5.2 billion in green energy-backed assets. Although the bulk of these assets is in the form of notes, the land leases involved are structured as triple-net leases, which means that the tenant is responsible for all major bills, including construction, maintenance, taxes, and any utility cost involved. This increases the REIT's profit margins substantially.
Despite an $8 million write-off during the second quarter of 2022 that came from a lease termination from back in 2017, revenue has increased 6.64% from Q2 2021 to Q2 2022, from about $58.9 million to $62.8 million, and the company continues to consistently meet or beat earnings forecasts.
Over the last five years, the green energy sector saw an increase in interest, and Hannon Armstrong Sustainable Infrastructure grew over 11% per year, on average. Dividends also continue to grow steadily, from an initial $0.06 quarterly per share on Aug. 16, 2013, to $0.375 quarterly per share on Oct. 11, 2022. This is a 575% increase in dividend payouts over just nine years, with a dividend yield of 5.5% as of Nov. 2.
Dance to the Rithm of dividends
Mike Price (Rithm Capital): Mortgage REITs (mREITs) aren't the most exciting investment, but they produce the most consistently high dividends. The financial companies borrow money at a low rate and use it to purchase mortgages or mortgage-backed securities, earning income on the spread.
Many mortgage REITs have dividend yields over 10% and most of them are trading for a discount right now because of interest rate fears -- when interest rates go up, the REITs pay more to refinance (they typically borrow for short terms) but are locked into lower rates for decades with the mortgages they purchased.
Rithm Capital pays a 12% dividend yield while maintaining a payout ratio of 40%, and its stock trades for just 0.69 times book value, but it doesn't have as much interest rate risk as most mREITs.
Rithm holds $623 billion of mortgage servicing rights (MSRs); its family of companies is one of the top five originators and servicers of mortgages. Financial companies purchase MSRs to service mortgages (meaning they collect and distribute escrow and principal and interest payments) for a set fee. MSR values go up when interest rates do because there is a lower chance the mortgagees will refinance, making the right worthless.
Rithm also has temporarily depressed earnings because it paid a $325 million one-time termination fee to its old external manager. It will be managed internally going forward, and management projects that this will save the company up to $65 million per year.
The new internal management is good to see. Management is focusing on reducing operating expenses, keeping its balance sheet strong, and allocating capital based on the returns it will generate.
Once earnings normalize and higher interest rates become the new normal, Rithm's stock may get a boost as investors pile into the company and its more than 12% dividend yield.
