Treasury yields for year bonds sitting fractionally higher at 2. But the catch for investing in higher yields can be as Baron Rothschild supposedly said when asked whether to seek an investment with a higher rate of return or a lower that if you want to dine well go for the first, and if you want to sleep well go with the later.
There are fortunately a collection of well-run companies in varied industries and markets that can provide market-beating yields to feed your appetite for higher dividends while enabling for sound sleep. Think back to the days of the Carter administration. The Misery Index takes the combination of the rate of unemployment and the rate of inflation.
When Gerald Ford was winding up his unelected term, the index was sitting at And then there were the soaring interest rates. Everything from mortgage rates to business loan rates were sky high if you could even get loans. Back then, the core of the smaller to middle-market businesses and corporations would seek to borrow from commercial banks at a rate called the Prime Rate.
The Prime Rate was set by banks theoretically for their best corporate borrowers. The rationale was twofold. So, for banks to lend, they would have to have some level of protection against further rises in inflation. And second, with the economy in the doldrums, credit risks for business borrowers required higher rates as an incentive to lend.
This is when a congressman from North Carolina had had enough. The act provided the incentive for investment companies to lend to companies as well as making additional equity investments. The act extended the Investment Company Act of , which allowed investment companies to make and hold investments in companies and other assets in the form of an investment fund with limited corporate taxes.
The result is that companies can set up funds and raise capital and make loans and other investments as a form of a passthrough, with shareholders getting income and gains passed through in the form of tax-advantaged dividends.
This is exactly what BlackRock Capital Investment Corporation continues to capitalize on for its shareholders. The companies span industries from industrials to technology as well as financial and other industries, providing a broad coverage and controlled industry risk for the portfolio. The scale and capability of the manager gives a competitive advantage in funding costs as well as access to the best prospective investments for the fund. BKCC shareholders continue to be rewarded with share price gains of some 3.
And with the funds revenues providing a strong level of coverage of the cash dividends the distribution makes for solid income stream for investors. STB is a company based in the U. Its business is delivering kids to and from their schools, as well as other activities and charters throughout the year. This might seem like a small gig, but each day, , buses transport over 24 million kids to and from their schools in the U.
That amounts to more than 10 billion trips a year. A large and very scattered collection of companies have entered this market, with some 4, companies running school buses. This is where Student Transportation comes in as a market consolidator.
The company has 10, buses serving over 1 million students. And those numbers are climbing on an ongoing basis including new districts signing on with the company. It acquires the right smaller private bus companies and integrates them into the growing firm. The company bids for contracts to provide transportation services for school districts. This allows districts to reduce costs while also providing a known annual budgetary cost.
The company also manages fleets and converts ailing existing local fleets and systems to newer, safer and more efficient bus systems. It also utilizes its fleets for chartered bus transportation including special trips as well as transporting sports and other school groups around the nation.
And it has innovations, including contracting with parents to schedule specific pick-ups and drop-offs. The dividend is declared quarterly and paid monthly and at a current yield of 7. HTGC is the company to own. The company is structured as an investment fund, which gives it the advantage of limiting corporate taxes while maximizing dividend payments to its shareholders. It operates much like a merchant bank. This means that it primarily makes loans and funds debt of private companies while also taking equity stakes that provide capital appreciation as the companies sell stock to the public or private markets.
It is based in the tech Mecca of Palo Alto, so Hercules gets to know everyone in the neighborhood that is noodling the next great idea in everything from gadgets to internet to food and life sciences. BNNY all before millions of future customers knew that they were essential. JPM all of which participate with Hercules on its many deals.
The dividend is well supported and has been paid every single successive quarter since Hercules went public. CODI is a company that Warren Buffett would love to own it would bring him back to the roots of his success. These would become the basis of Berkshire Hathaway Inc. And while he is widely revered as one of the most astute investors today, it was in his early years of buying smaller textile companies, map makers and other companies that really made his reputation and the base of his fortune.
Compass is set up under the Investment Company Act as a fund that owns or controls a select collection of private companies that are solid and maybe a bit boring, but also profitable, and generating the cashflow that feeds the dividend currently yielding 8. And because of the structure as a fund, there is no double taxation of dividend income, as the company is another form of a passthrough security with limited corporate taxation.
This also means that a portion of dividends paid to shareholders is shielded, making that 8. The companies include industrial and consumer products with strong and steady customer bases. They include Liberty Safe a gun safe manufacturer. And it has ErgoBaby a well-sought-after baby carrier branded company.
It has hemp-based food company Manitoba Harvest , the Sterno heating company and more. All together, the holdings of these companies continue to generate ample and rising revenues to support that dividend. Revenue gains for amounted to Think about that for a moment. Through all of the rising and falling interest rates and mortgage and home market booms and busts, MFA has not only been a survivor, but a profitable one.
The key to MFA is that it has maintained an expanding portfolio of mortgage securities with a strong eye on controlling risks. Right now, the primary risk in income investing is the prospect of rising interest rates, which can drag down existing securities. It does this by investing in shorter-maturity securities that have a low sensitivity to rising rates.
And it also invests in securities that step up in yield as interest rates rise. It also has a proven track record of engaging in specific hedges that provide offsetting gains if the mortgage market heads lower. Overall, the sensitivity on its entire portfolio is running at a duration of 0. And it also maintains a strong hold on the quality of its mortgage securities. The majority of its primary assets are purchased or owned at discounts to the underlying values of the property collateral.
This means that losses with defaults are highly minimalized, with most borrowers having lots of equity in their properties. Moreover, with the U. MFA manages its portfolio not just with hedges, but also with its credit facilities.
This means that it borrows at lower rates to help fund the mortgage securities it holds. This increases the net yield for investors. The dividend is paid quarterly at a current rate of 20 cents for a yield of 9. And since it is a REIT, it passes the majority of earnings on to stockholders. With a long history of positive performance and a great yield, MFA makes for a rock-solid dividend stock. Article printed from InvestorPlace Media, https: Earnings reports to watch next week: Breaking news sponsored by.More...