Investors love dividend stocks, especially those with ultra-high yields, because they provide a substantial income stream and offer significant total return potential. 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 24/7 Wall St., we consistently emphasize the potential of total return to our readers. It is one of the most effective ways to enhance the prospects of overall investing success. Once again, total return refers to the collective increase in a stock’s value, including dividends.
With over 12,000 publicly traded stocks in the United States, not even the most intelligent investors with the best tools can find them all immediately. Many investors and traders typically maintain a small list of key stocks they follow when seeking capital gains or high-yield dividends. We decided to screen our 24/7 Wall St. ultra-high-yield database, looking for solid companies yielding at least 8% with solid dividend coverage. Four well-run companies hit our screens, and all look like timely buys now, especially with the Federal Reserve on tap for next week. All four are Buy-rated at top Wall Street firms.
Why do we cover ultra-high-yield dividend stocks?
While not suited for everybody, those trying to build strong passive income streams can do exceptionally well with some of these top companies in their portfolios. Paired with more conservative blue-chip dividend giants, investors can employ a barbell approach to generate substantial passive income streams.
Ares Capital
The company specializes in providing financing solutions for the middle market and appears poised to reach new highs, while garnering a Buy rating from 12 analysts. This company is a high-yielding business development company (BDC). 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, healthcare products and services, and information technology sectors.
The fund will also consider investments in industries such as:
- Restaurants
- Retail
- Oil and gas
- Technology
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, with a maximum investment of $400 million, in companies with an EBITDA between $10 million and $250 million per year. 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 acquires stressed and discounted debt positions.
Ares Capital prefers to be an agent and lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.
Wells Fargo has an Overweight rating, accompanied by a $23 target price.
Plains All American Pipeline
This stock has been locked in a tight trading range and appears poised to break out, while offering a dependable dividend yield. Plains All American Pipeline L.P. (NYSE: PAA) engages in the pipeline transportation, terminalling, storage, and gathering of crude oil and natural gas liquids (NGL) in the United States and Canada. It operates in two segments.
The Crude Oil segment offers:
- Gathering and transporting crude oil through pipelines
- Gathering systems
- Trucks, barges, or railcars
- Terminalling, storage, and other facilities-related services and merchant activities
The Natural Gas Liquids segment provides:
- Gathering
- Fractionation
- Storage
- Transportation
- Terminalling activities
- Ethane, propane, normal butane, iso-butane, natural gasoline, and crude oil refining processes
UBS has a Buy rating on the shares with a $25 target price.
Starwood Property Trust
Starwood Capital is a well-established global investor with international investments spanning over 30 countries and is an affiliate with this high-yielding company, run by real estate legend Barry Sternlicht. Starwood Property Trust Inc. (NYSE: STWD) operates as a real estate investment trust (REIT) in the United States, Europe, and Australia.
It operates through four segments:
- Commercial and Residential Lending
- Infrastructure Lending
- Property
- Investing and Servicing segments
The Commercial and Residential Lending segment:
- Originates, acquires, finances, and manages commercial first mortgages
- Non-agency residential mortgages
- Subordinated mortgages
- Mezzanine loans
- Preferred Equity
- Commercial mortgage-backed securities (CMBS)
- Residential mortgage-backed securities
The Infrastructure lending segment originates, acquires, finances, and manages infrastructure debt investments.
The Property segment primarily develops and manages equity interests in stabilized commercial real estate properties, including multifamily properties and commercial properties subject to net leases, which are held for investment purposes.
The Investing and Servicing segment:
- Manages and works out problem assets
- Acquires and contains unrated, investment-grade, and non-investment-grade rated CMBS comprising subordinated interests of securitization and re-securitization transactions
- Originates conduit loans to sell these loans into securitization transactions and acquire commercial real estate assets, including properties from CMBS trusts
Wells Fargo has an Outperform rating, accompanied by a $24 price target.
Westlake Chemical Partners
Trading near a 52-week low with a substantial dividend, this is a solid passive income idea for growth and income investors now. Westlake Chemical Partners L.P. (NYSE: WLKP) is a limited partnership formed by Westlake Corporation to operate, acquire, and develop ethylene production facilities and other qualified assets.
The business and operations are conducted through OpCo. OpCo’s assets consist of three ethylene production facilities in Calvert City, Kentucky, and Lake Charles, Louisiana, as well as an ethylene pipeline that primarily converts ethane into ethylene, with an aggregate annual capacity of approximately 3.7 billion pounds, and a 200-mile ethylene pipeline.
It owns two ethylene production facilities at Westlake’s Lake Charles, Louisiana site (Petro 1 and Petro 2, collectively Lake Charles Olefins), with an annual combined capacity of approximately 3.0 billion pounds.
The company owns one ethylene production facility at Westlake’s Calvert City, Kentucky site (Calvert City Olefins), with an annual capacity of approximately 730 million pounds of ethylene.
Barclays has a Buy rating with a $29 target price.
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