Dear Red Alert Member,
Imagine you invested $100 in the S&P 500 at the end of 1940. Without dividends, you would have ended up with $12,000 by 2012.
But if you reinvested your dividends, you would instead have ended up with $174,000. That’s 14.5 times more.
Even if you choose not to reinvest – if you want income right now, quarter after quarter or even month after month – dividends can be extremely powerful income-generators to secure your “second salary.”
Since 2000, companies like McDonald’s Corp. (NYSE:MCD), for example, have raised their payouts by more than 1,650%, thrashing inflation growth and enriching investors from a growing income stream.
As you can see, dividends can work magic when it comes to reaching your financial goals and a safe retirement. In bull markets like today’s, they move up alongside companies’ earnings. They’re also fantastic insurance against market corrections, and indispensable when the Federal Reserve is punishing savers and income investors by keeping interest rates near zero.
Especially enticing are dividend-paying stocks with yields in the double digits (10%+). These are rare: of the more than 3,000 stocks listed on the NASDAQ, only about 6% have double-digit dividend yields. But that still leaves more than 200 to choose from on the NASDAQ alone.
Many income investors narrow the field down further by simply going for the stocks with the highest dividend yield. But a company’s ability to keep paying and increasing their dividend is just as important in the long term, if not more.
That’s why we’ve assembled this list of my favorite double-digit dividend payers that have the business models that can sustain high yields for years to come.
Let’s take a look.
1. Chimera Investment Corporation (NYSE:CIM)
| Chimera Investment Corporation(NYSE:CIM)
Price: $18.50 Yield: 10.74% Annual Payout: $2.00 ($0.50 paid quarterly) Dividend Growth: 27.5% in 2016 |
Our first income boosting opportunity is an investment class that dates back to the Eisenhower era – a security he signed into existence via a little-known act called the Cigar Excise Tax of 1960.
When Ike put pen to paper, he gave birth to Real Estate Investment Trusts, better known as REITs – a one-stop-shop opportunity for individual investors like you and me to invest in income-producing real estate.
Most recent numbers show that more than 200 REITs in the U.S., but only a small handful of them are generating the juicy dividends that are essential to your “second salary.”
And that brings me to Chimera Investment Corporation (NYSE: CIM) – one of my favorite REITs available, thanks to its diverse portfolio grounded on agency residential-mortgage backed security (RMBS), non-agency RMBS, agency commercial mortgage-backed securities (CMBS), residential mortgage loans and real estate related securities.
But even more appealing is the fact that Chimera, since evolving to an internally-managed trust, has outperformed its peers at an incredible rate. Check out the chart below.
According to the most recent three earnings reports, Chimera Investment Corporation has increased earnings from $96 million to $112.1 million, and then up to $116.3 million most recently.
A series of acquisitions throughout recent years even further bolsters this REIT’s appeal. Since 2014, Chimera has acquired more than $14 billion in seasoned performing loans through bulk transactions, bringing the total portfolio composition of loans to 63%.
With that triple-digit growth and a market cap of $3.47 billion, Chimera has the financials to support a consistent stream of dividend income – especially as it’s surrounded by a real estate market undergoing consistently positive upward momentum.
I should also point out that REITs, are required by the SEC to return 90% of taxable income to shareholders annually.
… in the form of dividends.
2. Oxford Lane Capital Corp. (NasdaqGS:OXLC)
| Oxford Lane Capital
Corp. (NasdaqGS:OXLC) Price: $10.45 Yield: 15.3% Annual Payout: $1.60 (Paid Quarterly) Dividend Growth: 37% in the last 6 years |
Oxford Lane Capital Corp. (NasdaqGS:OXLC) is a mutual fund that invests in collateralized loan obligations (CLOs), which are collections of secured corporate loans underwritten by banks.
Most investors are unfamiliar with CLOs, but they have a number of advantages over bonds and other sources of yield that allow Oxford Lane to carry a dividend yield of 15.3%.
First, unlike the sub-prime mortgage-based collateralized debt obligations (CDOs) that caused so many problems during the 2008 financial crash, CLOs fared well even as the markets collapsed around them. In fact, investors who kept their CLO investments during the crash or bought in at the bottom saw annual returns of up to 20%.
Second, unlike high-yield bonds, CLOs contain corporate loans underwritten by banks and secured by corporate assets, resulting in much lower credit losses.
Third, the banks that create CLOs can borrow at very low interest rates, allowing them to leverage their CLOs and boosting their return-on- equity to 20 to 30%, much higher than any bond.
And to make the quarterly dividend payments even more secure, Oxford Lane’s policy is to pay its dividend only from actual cash-flow from the fund’s investment portfolio, meaning that the fund itself is not overly leveraged.
To add to the dividend support, shareholders have enjoyed a dividend yield of over 46% since inception.
3. Arlington Asset Investment Corp. (NYSE:AI)
| Arlington Asset Investment Corp.(NYSE:AI)
Price: $11.91 Yield: 19.73% Annual Payout: $2.20 (paid quarterly) Dividend Growth: 92% in the last 8 years |
Headquartered in Arlington, Virginia, Arlington Asset Investment Corp. (NYSE:AI) is a publicly traded investment firm that mixes the stability of muni investing with the high income rewards of BDCs.
I’ve been on the record for months recommending AI as a promising income play with its juicy 18.47% yield. And recently, some of the brightest minds in finance have shown that they agree.
Looking at the long list of famous names that upped their stakes in AI dramatically last year, the firm that jumps out at me immediately is Renaissance Technologies, which increased its ownership of AI shares by snatching up another 87,000 shares, to pad the 624,000-share holding it had previously laid claim to.
If the name Renaissance Technologies doesn’t ring a bell, it’s the firm founded by the legendary Dr. James Simon.
Heralded by some as “the world’s smartest billionaire,” this former Harvard math professor has amassed a fortune of more than $16 billion by brilliantly exploiting market inefficiencies – and picking monster home runs by backing up-and-coming biotechs and undervalued funds like OZM.
He’s successfully put his firm’s money in front of some epic stock explosions, like Jazz Pharmaceuticals PLC (NasdaqGS:JAZZ) and Amgen Inc. (NasdaqGS:AMGN), the least profitable of which yielded gains of more than 17,000%.
At one point, his fund managed more than $65 billion in assets. Not bad for a guy who first tried his hand at investing with just $5,000 to his name!
Now, Dr. Simon’s firm may have been early to this trade, but I highly doubt it’s wrong.
And as AI treats investors to its lucrative income deliveries, it’s unlikely to give anyone a white-knuckled ride, either.
In fact, the firm’s beta as measured by Yahoo!Finance is an extremely stable 0.97 (the closer to 1, the lower the volatility), making this a strong retirement investment option for people who first and foremost are concerned with not losing what they have.
This stability, by the way, is exactly what you’d expect from a business gathering income through U.S. government-backed mortgages. It may not be the most exciting field, but it sure pays the bills, as you’ll see from this company’s quarterly dividend income stream.
Dividends are the immense upside to take into account when it comes to AI. The firm has a dividend yield of 19.73%, and these payouts have grown over the years. In the summer of 2010, for instance, AI paid out just $0.35/share in dividends, compared to the $0.55 it paid out last quarter. That’s a 58% surge.
As of October 2017, the company’s agency investment portfolio totaled $4.2 billion, consisting of $3.99 billion of agency mortgage-backed securities and $1.394 billion of net long to-be-announced agency securities.
This dynamic has allowed it to pay dividends to investors since 2003, and the company has $4.26 billion cash on hand, meaning its generous income stream for investors isn’t likely to dry up in the coming years.
4. Ticc Capital Corp. (NasdaqGS:TICC)
| Ticc Capital Corp. (NasdaqGS:TICC)
Price: $6.26 Yield: 12.76% Annual Payout: $0.80 (paid quarterly) Dividend Growth: 366% over the last 13 years |
During the stagflation of the early 80s, Washington D.C. created an unconventional security that allows regular investors to help fund promising private startups. The result was the Business Development Corporation (BDC).
BDCs are extremely powerful income generators because of their tax structure. Simply put, they’re taxed as regular investment companies and therefore pay little to no corporate income tax so long as they distribute at least 90% of their income to investors.
This requirement means that the right BDCs can be income machines for investors. Double-digit yields aren’t at all unusual – and they’re often sustained for years.
And that’s the opportunity I’ve found for you today with Ticc Capital Corp. (NYSE:TICC).
The BDC offers a stunning 12.76% yield, which is enough to generate $12,760 a year in income for every $100k stowed away – before we even start talking about capital gains.
With CNBC reporting that the average working person aged 56-61 has $163,577 to their name, TICC’s 12.76% yield would mean a $20,000 income stream a year – which amounts to $1667/month of taxable income.
Despite its generous payouts to shareholders, Ticc Capital is highly profitable, with a profit margin of 142.50% and operating cash flow of $270.10 million.
What’s especially exciting about Ticc Capital’s prospects as an income investment to buttress anyone’s retirement is the fact that it continues to re-invest in itself, even as it pays shareholders (generously) first.
In its most recent earnings report, TICC’s board approved another dividend payout while also confirming that the BDC had made $31.2 million worth of investments toward corporate loan investments and CLOs.
In other words, TICC’s current double-digit yield could not only continue but grow for years to come – and grow retired investors’ living standards with it.
5. New Residential Investment Corp. (NYSE: NRZ)
| New Residential Investment Corp.(NYSE:NRZ)
Price: $17.67 Yield: 11.22% Annual Payout: $2.00 ($0.50 paid quarterly) Dividend Growth: 55.4% in last 3 years |
Like our first opportunity, New Residential Investment Corp. (NYSE:NRZ) is a real estate investment trust, but one that, in particular, focuses on residential real estate. It’s a key player among residential housing in the U.S. – a market that, as I write this, totals just over $21.6 trillion.
It’s no wonder then that with over $70.2 billion in assets under management, this REIT has a solidly diversified portfolio in the real estate sector. Like Chimera, this company invests in residential mortgage backed securities (RMBS) but additionally in mortgage servicing rights (MSRs) as well as corporate and consumer loans.
In the $10 trillion mortgage servicing market, wherein the top five major US banks hold about $3.3 trillion and third-parties hold $2.3 trillion, mortgage servicing rights (MSRs) allow an institution to service a pool of loans for a fee.
Currently, banks own an estimated 74 % of MSRs, and after the housing bubble many banks are attempting to lower this positon. This will provide additional opportunities for New Residential Investment Corp. for years to come.
As an example, earlier this year, PHH Corporation (NYSE:PHH), one of the largest mortgage originating and servicing firms, finalized a significant deal . PHH released a filing with the SEC for the sale of 480,000 mortgages of which New Residential now have servicing rights on 81,500 of these .
These opportunities will keep those dividends streaming in.
In their most recent earnings report from the end of September , New Residential Investment far exceeded the Net Interest Income and core earnings from the same period a year prior. The earnings report showed a net interest income of $272.44 million (a 46.6% increase from last year), and core earnings of $199 million.
With an impressive portfolio and strong financials, New Residential Investment Corp. shareholders saw a consecutive dividend increase over the first to second quarters of 2018 – from $0.48 to $0.50 , and then remaining high at $0.50 second to third.
Again, as a REIT, New Residential is required by the SEC to return 90% of taxable income to shareholders annually. That means money in your pocket, if you’re one of ’em.
Now, these plays are enough to get anybody started on learning how to secure big returns through income investing, but we’re only scratching the surface.
Because you can witness for yourself how my colleague, Tom Gentile’s proprietary invention makes him $4,238 richer in under a minute…
Count it up...
$1,050 richer in 15 seconds…
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And Tom has pinpointed eight more trades that are fast-approaching – moves that could make you $15,000.
Best regards for great investing,
Keith Fitz-Gerald
