Does your current portfolio need a little bulking up, preferably with some sweet dividend-paying stocks? If you're looking for some high-yielding income producers, look at these suggestions, courtesy of three of the Motley Fool's financial sector contributors.
Amanda Alix: For high yields and tasty dividends, it's hard to beat Ellington Financial (NYSE:EFC), a specialty finance company that invests in mortgage-related assets. Though it is not a mortgage real estate investment trust, the company buys and manages various types of mortgage debt, with a focus on those not backed by Fannie Mae and Freddie Mac.
Ellington's management believes in varying its investments, and its portfolio contains a mix of jumbo loans, manufactured housing mortgages, commercial debt, and European-sourced mortgage-backed securities.
The company also recently jumped into the lucrative market for distressed European debt. These investments tend to perform well: Distressed assets on the company's books were responsible for more than one-third of its $28.3 million in gross revenue for the second quarter of this year.
Diversification has been a real plus for Ellington, it seems. Management recently noted that book value has been relatively stable throughout the market upheaval of 2013 that dinged other mortgage debt investors, including mREITs.
Ellington recently paid out a juicy $0.77 per share quarterly dividend, for the seventh time in a row. Currently, the stock has a yield of 13.75%, and its book value of $23.78 as of Sept. 30 makes it a particularly good buy following the company's recent secondary stock offering.
Jordan Wathen: I like Main Street Capital (NYSE:MAIN) as one of the best high-yield plays on Wall Street. The regular monthly dividends amount to an annual yield of about 6.7%; special dividends take the total yield closer to 8% per year.
What makes Main Street Capital attractive is its diversified mix of debt and equity stakes in private, middle-market businesses. One of its holdings, for example, is a stake in a small, 11-location, café chain based out of Texas.
Main Street Capital is merely a container within which you'll find stakes in more than 170 private companies. Many of its holdings were acquired opportunistically -- for instance, as part of the sale of a family business for estate planning reasons.
The management team is one of the best, if not the best, in its industry. Since going public in late 2007, Main Street Capital's total return recently topped 300%. And insiders are along for the ride -- the CEO makes more from dividends on his stake than he does in annual salary. How many executive teams can say that?
Over periods spanning years, the lower valuations of private companies, aligned incentives for managers, and the company's juicy dividend yield lead me to believe Main Street Capital can outperform.
Apollo is a business development company that makes its money primarily by financing the debt of small- to medium-sized businesses that don't have the credit quality to pursue low-interest financing. Because of this, these companies pay a rather high interest rate on their debt. To increase profits, Apollo borrows some money to lend out at these higher rates, which might sound pretty risky at first.
However, consider that Apollo has its portfolio investments spread across 117 companies in 37 industries, including household names such as BJ's Wholesale Club and Del Monte Foods, and nearly 60% of the portfolio is secured. Also, the company's success isn't terribly dependent on interest rates, as about half of its investments are floating rate, meaning Apollo makes more if rates rise.
All of this translates to a relatively safe 9.6% dividend yield, or $0.80 per share, which should easily be sustained by the $0.90-$0.93 in annual earnings per share the company is expected to produce until at least 2017. Also, shares currently trade for 5% below their book value, so there is some upside potential to supplement a great yield.
Amanda Alix has no position in any stocks mentioned. Jordan Wathen has no position in any stocks mentioned. Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Apollo Investment.. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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