Most dividend investors seek solid passive income streams from quality dividend stocks. Passive income is a steady stream of unearned income that doesn’t require active traditional work. Shared ideas for earning passive income include investments such as dividend stocks, bonds, and mutual funds, as well as real estate and additional income-producing side hustles. The more passive income can help cover rising costs, such as mortgages, insurance, taxes, and other expenses, the easier it is for investors to set aside money for future needs as they prepare for retirement. Dependable recurring dividends from quality, high-yield stocks are a recipe for success. When those stocks trade at $20 or below, investors can purchase more shares, which in turn will deliver higher income payments.
We screened our 24/7 Wall St. high-yield dividend stock research database for companies trading below $20 that offer investors enormous total return potential. While more suited for growth and income investors with somewhat higher risk tolerance, all five of these stocks look like solid ideas as we head into the second quarter. All are rated Buy at the top Wall Street firms that we cover.
Why do we cover 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 use a barbell approach to generate substantial passive income.
Ares Capital
The company specializes in providing financing solutions for the middle market and appears poised to reach new highs, garnering a Buy rating from seven analysts and yielding a 10.30% dividend. Ares Capital (NASDAQ: ARCC) is a high-yielding business development company (BDC) that specializes in acquisitions, recapitalizations, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions for middle-market companies.
It also makes growth capital and general refinancing. It prefers to invest in companies in basic and growth manufacturing, business services, consumer products, healthcare products and services, and information technology.
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 its Chicago office; and the Western region from its Los Angeles office.
The fund typically invests between $20 million and $200 million, with a maximum of $400 million, in companies with EBITDA between $10 million and $250 million annually. 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 act as an agent and lead transactions in which it invests. The fund also seeks board representation in its portfolio companies.
Royal Bank of Canada has an Outperform rating with a $22 price target.
CTO Realty Growth
CTO Realty Growth (NYSE: CTO) is a publicly traded real estate investment trust (REIT) that owns and operates a portfolio of high-quality, retail-based properties. With a rich 7.77% dividend yield and solid upside potential, this lesser-known REIT makes sense for passive-income investors.
CTO Realty Growth owns and operates a portfolio of high-quality, retail-based properties located primarily in higher-growth markets in the United States. With a 96% leased occupancy rate and a strategy targeting high-yield acquisitions, CTO offers strong income potential. In addition, its smaller market cap and focus on retail REITs in specific growth markets make it less visible compared to larger, more diversified REITs.
The company’s segments include:
- Income properties
- Management services
- Commercial loans and investments
- Real estate operations
CTO holds a stake in Alpine Income Property Trust, further diversifying its holdings. With a 96% leased occupancy rate and a strategy targeting high-yield acquisitions, CTO offers strong income potential. It has paid dividends for 49 consecutive years, reflecting reliability.
The commercial loans and investments segment includes a portfolio of five commercial loan investments and two preferred equity investments.
Its income property operations consist of income-producing properties.
CTO Realty Growth’s business includes its investment in Alpine Income Property Trust. The portfolio of properties includes:
- Carolina Pavilion
- Millenia Crossing
- Lake Brandon Village
- Crabby’s Oceanside
- Fidelity
- LandShark Bar & Grill
- Granada Plaza
- The Strand at St. Johns Town Center
- The Shops at Legacy
- Price Plaza
Jones Trading has a Buy rating on the shares, with a $21 target price.
Energy Transfer
Energy Transfer (NYSE: ET) is one of North America’s largest and most diversified midstream energy companies. This top master limited partnership is a safe option for investors seeking energy exposure and income, as the company pays a 7.10% distribution yield.
Energy Transfer owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint across all major domestic production basins. The company is a publicly traded limited partnership with core operations that include:
- Complementary natural gas midstream, intrastate, and interstate transportation and storage assets
- Crude oil, natural gas liquids (NGL), and refined product transportation and terminalling assets
- NGL fractionation
- Various acquisition and marketing assets
Following the acquisition of Enable Partners in December 2021, Energy Transfer owns and operates over 114,000 miles of pipelines and related assets in 41 states, spanning all major U.S. producing regions and markets. This further solidifies its leadership position in the midstream sector.
Through its ownership of Energy Transfer Operating, formerly known as Energy Transfer Partners, the company also owns Lake Charles LNG Company, the general partner interests, the incentive distribution rights, and 28.5 million standard units of Sunoco (NYSE: SUN), and the public partner interests and 39.7 million standard units of USA Compression Partners (NYSE: USAC).
TD Cowen has a Buy rating on the shares, with a $21 target price.
Healthpeak Properties
This leading company invests in real estate in the healthcare industry, including senior housing, life sciences, and medical offices. Healthpeak Properties (NYSE: DOC) shares have lagged peers over the past year due to lower-than-expected rent increases. The fully integrated REIT currently trades at a significant discount to its fair value and pays a 7.01% dividend.
The company acquires, develops, owns, leases, and manages healthcare real estate across the United States. It owns, operates, and develops real estate focused on healthcare discovery and delivery.
Healthpeak Properties segments include:
- Lab
- Outpatient medical
- Continuing care retirement community (CCRC)
The Outpatient medical segment owns, operates, and develops outpatient medical buildings, hospitals, and lab buildings.
The Lab segment properties contain laboratory and office space, and are leased primarily to:
- Biotechnology
- Medical device and pharmaceutical companies
- Scientific research institutions
- Government agencies
- Organizations involved in the life science industry
Its CCRC segment is a retirement community that offers independent living, assisted living, memory care, and skilled nursing units, providing a continuum of care within an integrated campus.
Baird has an Outperform rating and a $20 target price.
Starwood Property Trust
Starwood Capital is a well-established global investor with international investments across more than 30 countries and an affiliate of Starwood Property Trust (NYSE: STWD), which boasts a 10.70% dividend yield and is led by real estate legend Barry Sternlicht. It operates as a REIT in the United States, Europe, and Australia.
Since going public 15 years ago, Starwood Property Trust has kept its dividend intact, never once reducing it, and has held its current payout steady for more than 10 years. The company’s loan portfolio spans commercial, residential, and infrastructure assets, and it operates with a conservative leverage ratio below 3x.
It operates through four segments:
- Commercial and Residential Lending
- Infrastructure Lending
- Property
- Investing and Servicing
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 and net-leased commercial properties, 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 and a $21 price target.
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