According to the Internal Revenue Service (IRS), passive income generally includes earnings from rental activity or any trade, business, or investment in which the individual does not materially participate. It can also include income from limited partnerships, stocks, bonds, and other similar enterprises in which the investor is not actively involved.
The more passive income can help cover costly and rising costs like mortgage, insurance, taxes, and other expenses, the easier it is for investors to put away money for future needs as they build to retirement. Dependable recurring dividends from quality, high-yield stocks are a recipe for success.
We constantly screened our 24/7 Wall St. passive income stock research database, looking for the best ideas, and we noticed four stocks, often overlooked by investors, that are dividend wonders. All are rated Buy at top Wall Street firms.
Why do we cover ultra-high-yield dividend stocks?
Dividend stocks provide investors with reliable streams of passive income. Passive income is characterized by its ability to generate revenue without requiring the earner’s continuous active effort, making it a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
Ares Capital
The company specializes in financing solutions for the middle market.
This high-yielding business development company (BDC) pays a massive 8.72% dividend. Ares Capital Corp. (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
- Technology
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
Ares Capital 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.
Dow
Dow is a materials science company that offers a wide range of products and services.
This company was spun out from DuPont in 2019 and offers investors growth and income potential with a hefty 7% dividend. Dow Inc. (NYSE: DOW) is a leading materials science company formed by the merger of Dow and DuPont in 2017 and subsequent spin in 2019. Companies recently removed from the iconic Dow Jones Industrials often thrive after removal.
The company is organized into three principal divisions:
- Performance Materials & Coatings
- Industrial Intermediates & Infrastructure
- Packaging & Specialty Plastics
The company’s segments include Agricultural Sciences, which provides crop protection, seed/plant biotechnology products and technologies, urban pest management solutions, and healthy oils.
Consumer Solutions, which consists of:
- Consumer Care
- Dow Automotive Systems
- Dow Electronic Materials
- Consumer Solutions-Silicones businesses
Infrastructure Solutions, which consists of:
- Dow Building & Construction
- Dow Coating Materials
- Energy & Water Solutions
- Performance Monomers and Infrastructure Solutions-Silicones businesses
Performance Materials & Chemicals, which consists of Chlor-Alkali and Vinyl, Industrial Solutions and Polyurethanes businesses.
Performance Plastics, which consists of:
- Dow Elastomers
- Dow Electrical and Telecommunications
- Dow Packaging and Specialty Plastics
- Energy and Hydrocarbons business
PennantPark Floating Rate
The company invests in middle-market companies in the United States.
Almost ignored by Wall Street, PennantPark Floating Rate Capital Ltd. (NYSE: PFLT) is another BDC with a massive 11.36% dividend. The company seeks to invest through floating-rate loans in private, 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, PennantPark expects at least 80% 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% of its portfolio through senior secured loans.
USA Compression Partners
USA Compression Partners provides natural gas compression services under term customer contracts.
While perhaps less known than their peers, this top company pays shareholders a hefty 9.26% dividend. USA Compression Partners L.P. (NYSE: USAC) provides natural gas compression services.
The company offers compression services to:
- Oil companies and independent producers
- Processors
- Gatherers
- Transporters of natural gas and crude oil, as well as operating stations
USA Compression Partners primarily provides natural gas compression services to infrastructure applications, including centralized natural gas gathering systems, processing facilities, and gas lift applications for crude oil wells.
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