Investing

 5 Passive Income Ultra-Yield Stocks That Are Always Overlooked 

Lee Jackson

Published: March 4, 2024 10:05 am

Investors love dividend stocks because they provide dependable income and give investors a great opportunity for solid total return. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation.

At 247 Wall St., we always like to remind our readers about the impact total return has on portfolios because it is one of the best ways to help improve the chances for overall investing success. Again, total return is the combined increase in a stock’s value plus dividends.

Passive income is a steady stream of unearned income that doesn’t require active traditional work. Shared ideas for earning passive income include investments, real estate, or side hustles.

We decided to screen our 24/7 Wall St. Ultra-Yield dividend stock research universe, looking for solid companies paying significant passive income streams to shareholders. We found five that always seem to be overlooked by investors. All five are rated Buy on Wall Street.

Arbor Realty Trust

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This company trades at a ridiculous 7.7 times estimated 2024 earnings and pays a massive 12.84% dividend. Arbor Realty Trust (NYSE: ABR) invests in a diversified portfolio of structured finance assets in the multifamily, single-family rental, and commercial real estate markets in the United States.

The company operates in two segments:

• Structured Business 
• Agency Business.

Arbor Realty Trust primarily invests in:

• Bridge and mezzanine loans, including junior participating interests in first mortgages
• Preferred and direct equity and real estate-related joint ventures
• Real estate-related notes
• Various mortgage-related securities

The company offers:

• Bridge financing products to borrowers who seek short-term capital to be used in an acquisition of property;
• Financing by making preferred equity investments in entities that directly or indirectly own real property;
• Mezzanine financing in the form of loans that are subordinate to a conventional first mortgage loan and senior to the borrower’s equity in a transaction;
• Junior participation financing in the form of a junior participating interest in the senior debt and
• Financing products to borrowers seeking conventional, workforce, and affordable single-family housing.

Further, it underwrites, originates, sells, and services multifamily mortgage loans through conduit/commercial mortgage-backed securities programs.

Ares Capital

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This company is a high-yielding Business Development Company (BDC) paying a massive 9.49% dividend. Ares Capital Corporation (NASDAQ: ARCC) specializes in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle-market companies.

It also makes growth capital and general refinancing. It prefers to invest in companies engaged in basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors.

The fund will also consider investments in industries such as:

• restaurants,
• retail,
• oil and gas, and
• technology sectors.

It focuses on investments in the Northeast, Mid-Atlantic, Southeast, and Southwest regions from its New York office, the Midwest region from the Chicago office, and the Western region from the Los Angeles office.

The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million

The fund invests through:

• Revolvers,
• First-lien loans
• Warrants
• Unitranche structures
• Second-lien loans
• Mezzanine debt
• Private high yield
• Junior Capital
• Subordinated debt
• Non-control preferred and common equity.

The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically finds the purchase of stressed and discounted debt positions.

Ares Capital Corporation prefers to be an agent and lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.

British American Tobacco

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This European giant continues to print money, has a vast product line, and pays a massive 9.94% dividend. 

British American Tobacco plc (NYSE: BTI) offers:

• Vapor
• Tobacco heating
• Modern oral nicotine products
• Combustible cigarettes
• Traditional oral products, such as snus and moist snuff

The company offers its products under:

• Vuse,
• Glo
• Velo
• Grizzly
• Kodiak
• Dunhill
• Kent
• Lucky Strike
• Pall Mall
• Rothmans
• Camel
• Natural American Spirit
• Newport
• Vogue
• Viceroy
• Kool
• Peter Stuyvesant
• Craven A
• State Express 555 
• Shuang Xi brands

Frontline

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While off the radar of most investors, this shipping company could explode higher and pays a massive 12.62% dividend. Frontline plc (NYSE: FRO) engages in the seaborne transportation of crude oil and oil products worldwide. It owns and operates oil and product tankers.

In a press release earlier this year, the company announced that it would sell its five oldest VLCCs (Very large crude carriers) built in 2009 and 2010 for an aggregate net sale price of $290 million.

The vessels are expected to be delivered to the new owner during the first quarter of 2024. After repaying existing debt on the vessels, the transaction is expected to generate approximately $207 million in net cash proceeds.

The Company expects to record a gain in the first quarter of 2024 in the range of roughly $68 million to $76 million, depending on the delivery date of each vessel to the new owner. The sale is subject to certain closing conditions, according to industry standards.

Following the transaction and the completion of the delivery of all 24 VLCCs acquired from Euronav NV, Frontline’s fleet will consist of:

• 84 vessels comprised of 41 VLCCs
• 25 Suezmax tankers 
• 18 LR2/Aframax tankers

PennantPark Floating Rate

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Almost ignored by Wall Street, this is another business development company with a massive 10.13% dividend. PennantPark Floating Rate Capital Ltd. (NYSE: PFLT) seeks to invest through floating rate loans in private or thinly traded or small market-cap, public middle market companies.

It primarily invests in the United States and, to a limited extent, non-U.S. companies. The fund typically invests between $2 million and $20 million.

The fund also invests in

• Equity securities
• Preferred stock
• Common stock
• Warrants or options received in connection with debt investments or through direct investments

It primarily invests between $10 million and $50 million in senior secured loans and mezzanine debt. It seeks to invest in companies not rated by national rating agencies.

The fund invests 30% in non-qualifying assets like:

• Investments in public companies whose securities are not thinly traded or do not have a market capitalization of less than $250 million,
• Securities of middle-market companies located outside of the United States
• High-yield bonds
• Distressed debt
• Private Equity
• Securities of public companies that are not thinly traded
• Investment companies as defined in the 1940 Act

Under normal conditions, the fund expects at least 80 percent of its net assets plus any borrowings for investment purposes to be invested in floating-rate loans and investments with similar economic characteristics, including cash equivalents invested in money market funds. It expects to represent 65 percent of its portfolio through senior secured loans.