Start the conversation
The search for income will not be any easier in 2021 than it was for most of 2020. The U.S. Federal Reserve has vowed to keep rates low to support the economy as we deal with the pandemic's economic fallout.
We can tell this from the Fed's projection at its August meeting. It doesn't look like we will see meaningful action toward higher interest rates until 2024 at the earliest.
But the best dividend stocks are still paying more than 7%. We're sharing them with you today.
The stock market has shaken off the pandemic thanks to actions taken by the Fed and stimulus packages from Congress. The continued move higher in stocks has removed many dividend stocks from consideration.
The only two ordinary stocks that provide an income of 7% or more are Altria Group Inc. (NYSE: MO) and AT&T Inc. (NYSE: T). On several occasions, we have suggested that on those rare down days in the stock market, income buyers who do not already own them should take a position.
Increasing investors searching for income will have to turn to alternative income opportunities from closed-end funds, master limited partnerships (MLP), REITs, and business development companies (BDC).
It may seem challenging to decide which income alternative investment to choose. But there is a simple strategy for determining which alternative investment opportunity is best at any given time.
Simply wait for a large insider purchase of the stock.
The people managing these assets have a good idea of how solid their loan portfolio is right now or how much volume is running through the pipeline and storage facilities. Closed-end fund managers know what assets they own and what steps the board may be preparing to take to narrow the discount to net asset value (NAV) or increase the dividend payout.
Keep in mind, insiders usually already own shares of the enterprise. No rule says they have to whip out their checkbook and make open market purchases of shares.
They are doing it because they believe they will collect a lot of dividends, and the value of the shares is going to increase over time.
This first dividend stock has an 8.5% yield…
Activist Investors Pumping This Dividend Stock
While not always an officer or director, beneficial owners of 10% or more of a fund or company's shares are considered insiders and have to report additional purchases. Saba Capital is regarded as a beneficial owner of Invesco Dynamic Credit Opportunities Fund (NYSE: VTA), a fixed-income closed-end fund.
Saba now owns 14.5% of the fund.
WARNING: It's one of the most traded stocks on the market every day – make sure it's nowhere near your portfolio. WATCH NOW.
Saba is an activist in this situation and has every intention of forcing the fund to reduce the discount to the net asset value. Right now, that fund is trading around $10.55 while the NAV is $11.65. Saba is going to do everything he can to collect that $1.10 or so.
If the high yield bond markets keep moving higher, that number is going to go up.
He can't be paid unless his fellow shareholders also get paid.
The dividend on the fund is 8.5% right now, and it's paid monthly.
We can collect an above-average dividend yield and have the opportunity for another 10% or more in gains if a tender offer or liquidation of the fund occurs because of Saba activist efforts.
Now, here's a dividend stock with a slightly higher yield.
A Dividend Stock with Massive Insider Buying
The Co-CEO of Enterprise Product Partners LP (NYSE: EPD) has been buying shares of the MLP he helps run since the pandemic began to disrupt the markets. His latest purchase was made earlier this month, when he purchased another $100,837 worth of stock. Since March, he has purchased more than $867,000 shares of stock.
He has not been the only buyer. Several officers and directors have been buying shares of Enterprise Product Partners in recent months. The stock is off 30% this year because of weakness in energy markets. The people running the company seem to think that dramatically undervalues the assets Enterprise Product Partners own.
Enterprise owns 50,000 miles of pipelines, 260 million barrels of storage capacity for natural gas liquids, crude oil, refined products, and petrochemicals. The MLP also owns 14 billion cubic feet of natural gas storage capacity. It is active in every area of the country where oil and gas are produced. It gets a fee on every drop of oil, natural gas, and natural gas liquids that moves through its system.
Since it is structured as a partnership, a good portion of those fees will be paid to us as limited partners. Right now, the yield on Enterprise Product Partners is a little over 9%.
With the arrival of a vaccine helping open up the economy in 2021, oil demand should begin to rise next year. Shares of Enterprise Product Partners could rise back to pre-pandemic levels, creating an opportunity for a 50% gain in addition to the dividends we will receive.
Finally, here is our best dividend stock today.