High-Dividend Stocks and Mega-Deals: 5 Stocks Offering Single-Digit Dividend Yields
Thriving American Middle Class Bolstered by Financial Giants
In the Trump era, the stocks of major US financial investors like Blackstone, KKR, and Apollo Global Management have been on a non-stop streak. For dealmakers, who are often criticized as "locusts" by the left, it's a dream come true when the top dog in the industry is one of them. Trump's promises of loosened regulations and deal funding have delighted these capitalists.
However, the anticipation is high for these dealmakers' valuations. The price-to-earnings ratios for next year range between 20 to 30, and the dividend yields, traditionally the primary argument for buying stocks, rarely surpass three percent.
But lesser-known financial investors, such as Apollo, Blackstone, and KKR, have subsidiaries that lend to companies, broker financings, invest in start-ups, and orchestrate takeovers. These hidden champions of finance, dubbed as Business Development Companies (BDCs), share some similarities with Real Estate Investment Trusts (REITs), except they generate profits from credit risks instead of real estate.
The biggest similarity with REITs is the tax advantages these entities enjoy and the requirement to distribute 90 percent of their earnings to shareholders. Dividend yields are among the highest in the American market.
Top High-Yield, Low Price-to-Earnings Stocks
For instance, MidCap Financial Investment Corporation, managed by Apollo, has a yield of 12.6 percent. After deducting US source tax, net yields amount to 8.8 percent. FS KKR Capital outperforms with a predicted pre-tax yield of 14.3 percent. The Blackstone Secured Lending Fund, which sounds more like a fund than a stock, trails slightly at 10.6 percent. However, the dividend yield serves as an indicator of risk. The poorer the companies funded by BDCs, the greater the profits that can be paid out to investors - if the deal is successful. Many BDCs don't shy away from helping struggling companies that can no longer secure loans from banks. Default rates have been relatively low lately, but in the event of a recession, dividend cuts and subsequent stock value drops for BDCs must be factored in.
Among the most stable BDCs are two companies that fly under the radar. The largest player in the market is Ares Capital. The dividend yield of 8.9 percent (pre-US source tax) is slightly less than the competition, indicating that risk management is effective. Also among the heavyweights is the tech-focused company Hercules Technology Growth Capital with a dividend yield of 8.4 percent. However, the stock performance is less impressive compared to tech titans. Investors in BDCs are likely to overlook this, as they are primarily interested in the regular, quarterly dividends.
In a nutshell, BDCs have their fair share of risks, such as interest rate fluctuations, economic downturns, regulatory changes, market volatility, competition, and cybersecurity threats. Yet, they also offer appealing returns due to high yields, growth in the private credit market, diversification benefits, and economic recovery opportunities. Investors should weigh these factors when considering BDCs for their investment portfolios.
Investing in Business Development Companies (BDCs) like MidCap Financial Investment Corporation (managed by Apollo), FS KKR Capital, Blackstone Secured Lending Fund, Ares Capital, and Hercules Technology Growth Capital can provide personal-finance benefits with high dividend yields, making them attractive options in the realm of personal-finance investing. However, it's crucial to remember that these investments come with financial risks such as interest rate fluctuations, economic downturns, regulatory changes, market volatility, competition, and cybersecurity threats, so thorough research and careful consideration are essential for wise personal-finance management.
