You may have noticed that interest rates may be lower than normal on savings accounts, certificates of deposits, and bonds. Finding a high yield has gotten tougher than ever. Despite this challenge, there are some investments that are paying out large dividend payments to investors.
Here are 3 stocks that are great for income seeking investors.
1. Hatteras Financial (HTS)
Hatteras is not quite the bargain that it was when the stock first came onto my radar last May. The stock was just $23 per share and offering a 7% yield. The stock is up 30% since then but the company still sports a great dividend yield. Hatteras Financial is yielding 14.7% and has no plan to cut the dividend anytime soon. I like the fact that Hatteras only invests in mortgages that are 100% guaranteed by the federal government.
2. Annaly Capital Management (NLY)
Annaly Capital is a riskier play for income investors because the company has one of the highest leverage ratios of 6.5 to 1. This bears watching, considering that the company does not solely invest in government agency and GSE guaranteed debt. Annaly also earns dividend income from its subsidiaries which invest in non agency backed securities. Annaly’s current dividend yield is 15.2% and the stock trades at $18 a share. Annaly Capital is attractive because of the company’s longtime dividend history and has been able to consistently pay out a dividend to shareholders over the past 13 years. The average yield has been 10% over this time period.
3. Chimera Investment (CIM)
Chimera Investment Corp is a subsidiary of Annaly Capital. The stock is attractive to investors for two reasons. The first reason is its 17.8% dividend yield. At just $4 a share, the stock has one of the highest current yields on the New York Stock Exchange. The other reason is the low debt to equity ratio. Chimera has a leverage ratio of just 1.3 to 1 which is very low for a REIT. The company is also trying to take advantage of the low interest rate environment by selling 125 million shares to raise capital for debt retirement and financing investment purchases.
Keep in mind that these stocks are not for the faint of heart. All of these companies are real estate investment trusts that derive the bulk of their income by purchasing mortgage backed securities. These REITs capitalize on the spread between the interest income earned on the mortgages and the borrowing cost to purchase mortgages. As long as interest rates remain low, these companies should prosper. Once interest rates start rising again, spreads will tighten and the dividend yields will drop.
Disclosure: I do own shares of Hatteras Financial.