Investors who want to play it "safe" by staying parked in cash are likely to earn very little over the next few years. Investors who are willing to accept some risk can get into stocks with dividend yields which will easily beat rates paid by money market accounts. However, most well-known dividend stocks have seen big moves that have pushed the yields down.
For example, Verizon Communications, Inc. (NYSE:VZ) is now trading close to the 52-week high, and for about 17 times earnings. The rising price of the stock has pushed the yield down to about 4.6%, and some investors and analysts believe there is a bubble forming in some dividend stocks. An analyst at Alliance Bernstein (NYSE:AB) believes that investors might be paying too much for stocks like Verizon and Southern Company (NYSE:SO), which also trades for about 17 times earnings, and pays a yield of 4.3%. When even some of the highest-yielding blue chip type stocks are yielding just about 4% or so, it is harder to rationalize the risk of owning stocks. One negative news release or an earnings miss can knock 4% or more off a stock in a single day. That's why investors should consider having some exposure to stocks that might not be as well-known, but offer yields that can double or triple what many popular dividend stocks now pay. Here is a closer look at one stock that has a stable dividend history, plus a yield of over 10%:
Solar Capital Ltd. (NASDAQ:SLRC) is a business development company that is focused on providing a variety of loans to middle-market companies. It offers senior secured loans, mezzanine loans and it also invests in equity securities. By making both debt and equity investments, this company is able to generate regular sources of income and capital appreciation. This business model allows Solar Capital to offer a yield that far outpaces many traditional dividend stocks. By using leverage and borrowing at low interest rates, this company is then able to invest that capital at higher rates. This enables it to pay shareholders a very generous yield on a quarterly basis. Here are a couple more reasons to consider buying the stock:
1) Jim Cramer has taken notice of Solar Capital. In June 2012, he had the CEO of this company on his "Mad Money" show, and he has even given the shares a buy rating, thanks to solid management and a generous yield.
2) Solar Capital recently announced solid financial results. For the quarter that ended on June 30, 2012, it reported earnings of $16.1 million, or 44 cents per share, and net investment income of $14.4 million, or 39 cents per share. If you exclude expenses relating to a new $485 million credit facility, $75 million private notes, and other non-recurring expenses, net investment income would have been even higher, at $20.5 million, or 56 cents per share. It also reported net asset value of $824.9 million, or $22.51 per share, at the end of the quarter.
With the stock offering a yield of more than 10%, investors who buy and hold for the next 5 years could end up with 50% gains just from the dividends alone. That certainly beats many alternatives out there. Plus the stock trades at just a slight premium to book or net asset value, which indicates the shares are still reasonably priced.
Here are some key points for SLRC:
Current share price: $23.47
The 52 week range is $18.90 to $23.89
Earnings estimates for 2012: $2.23 per share
Earnings estimates for 2013: $2.54 per share
Annual dividend: $2.40 per share which yields about 10.2%
Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial