4 names worthy of consideration for high yield dividends.
Ah, the never-ending hunt for yield in the form of dividend stocks! I do stock screens almost every day for dividend stocks, hoping to find dividend stocks that are worthy of research, or possibly to purchase.
Dividends are more than just a nice little quarterly, or even monthly, check in the mail. They tell me that the company is doing well, that it is returning some of its earnings to us loyal shareholders, and that business should be good for the near future.
More and more interesting dividend stocks have been appearing in recent years, as the Fed’s quantitative easing program destroyed bond yields. I’ve got four interesting candidates worthy of research to examine.
Dividend Stock No. 1: Ares Dynamic Credit Allocation (NASDAQ:ARDC)
Ares Dynamic Credit Allocation (NASDAQ:ARDC) isn’t an actual dividend stock, but something called a closed-end credit fund. Ares is one of the more well-known private equity houses, with $77 billion of assets under management. This closed-end fund has income as a primary objective, but also seeks to pick up some capital appreciation along the way.
Specifically, it invests in a broad portfolio of senior secured loans in companies whose debt is rated below investment grade, as well as high yield, below-investment-grade corporate bonds, and collateralized loan obligations.
The corporate bonds account for about 44% of the portfolio, and senior loans take up 36%. The CLO’s and cash account for the rest.
It pays a monthly distribution of $0.117, which represents a 7.86% yield.
Dividend Stock No. 2: Airgas, Inc. (NYSE:ARG)
Although its name may elicit some chuckles, Airgas, Inc. (NYSE:ARG), is one of those wacky niche companies that I love. Yes, it supplies gas. Not gas, as in, petroleum-based gas. I mean industrial, medical, and specialty gases like nitrogen, oxygen, helium, and hydrogen, as well as carbon dioxide and nitrous oxide. They rent the big cylinders for storage, too. This is broad business – more broad than you might think. Gases are used across manufacturing, construction, the life sciences and, of course, healthcare, food, beverage.
It has an international reach, over 30 years experience in the field, and is in that sweet spot between Peter Lynch stalwart stock and growth stock with its 11% annual EPS growth. It’s a bit pricey at 20x earnings, and I’d like to see more FCF out of it, but it’s the kind of stock I’d buy in a big market correction, and pick up its 2% yield (which would rise if the stock fell).
Dividend Stock No. 3: Preferred Apartment Communities (NASDAQ:APTS)
Preferred Apartment Communities (NASDAQ:APTS) is a high-yielding (8.1%) real estate play, that acquires and manages some 31,000 multi-family apartment units in the US. The REIT also holds mezzanine loans, from which the financing is being used to build other communities. It has options to purchase the communities, as well.
This is one of many companies that swooped into the real estate market during the financial crisis, in order to pick up distressed real estate assets on the cheap. Although the thrust of the company strategy is to buy, renovate, and rent the units to throw off substantial dividends, it may occasionally take advantage of a hot market and go for capital appreciation.
Dividend Stock No. 4: AT&T (NYSE:T)
The final selection is one that most investors know very well: AT&T (NYSE:T). Why am I mentioning this stock in line with all the others? AT&T is not what I’d consider a growth company. However, it has such a huge foothold in the world’s telecom marketplace that it is a free cash flow monster.
It manages to throw off between $14 billion and $20 billion of FCF annually. That is just amazing. About half of that FCF is used to pay its 5.2% yield. If the DIRECTV (NYSE:DTV) acquisition goes through, which I expect, it’ll add another $2.3 billion to that number. It remains a quality dividend play.
Lawrence Meyers owns shares of DTV.
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