If you are an income-focused investor, you’re likely concerned about the combination of low yields and inflation. For example, with the 10-year US treasury offering less than 1.5% yield, and growing inflation threatening to devalue your nest egg, you’re likely looking for differentiated investment opportunities that don’t involve too much risk. One strategy worth considering is to assemble a wide-ranging portfolio of investments (wide-ranging to help you diversify away a lot of the big risks) that also provides higher yields and will help keep you ahead of inflation. In this report, we share our top 10 Big Dividends to help you identify opportunities that might fit the bill for you.

Before getting into the ranking, it’s worth providing a little context. First, here is a look at the historical 10-year treasury yield.

10-Year US Treasury Yield:

As you can see, long gone are “the good ‘ole days” of the early-1980’s where you could plop your cash into safe US treasuries and earn an amazing 15% yield.

Next, here is a look at inflation (i.e. the hidden thief in the night that steals away the value of your money).

*For 2021, the most recent monthly inflation data (12-month based) is displayed in the chart. Source:www.usinflationcalculator.com.

As you can see, inflation has been on the rise. And many investors are increasingly concerned that inflation will only accelerate from here with such low interest rates combined with continuing rampant government spending.

Next, here is a chart explaining the benefits of diversification. As you can see, as the number of holdings in your portfolio goes up, the supposed volatility risk goes down.

Of course, short-term volatility is largely irrelevant if you can’t ultimately pick good long-term investments, something we attempt to help you with in this report. Furthermore, short-term volatility is a lot less relevant as long as those big strong dividends keep rolling in.

How to Find Big Strong Dividends

Identifying the biggest dividends is a fairly straightforward exercise, but identifying big dividends that are also strong is something very different. One of several methodologies we use to identify attractive big-dividend opportunities (besides simply reading a lot) is to run a stock screener. For example, here is a look at a stock screener we used to help us identify big dividends that are also healthy and strong. Specifically, and in addition to high dividend yields, this screener looks at dividend growth (over the last 1 and 3 years), as well as dividend coverage.

*(source: StockRover, data as of 6/10/21)*

Dividend growth and dividend coverage are examples of metrics that can help identify safe dividend opportunities (and multiple names in our top 10 ranking passed this dividend safety screen). However, at the end of the day, fundamentals and of course your own personal investment goals are big factors in identifying attractive opportunities.

The Top 10 Big Dividends

In this report, we have hand-selected our top 10 big dividends for you to consider, including explanations of why we consider each one strong. We currently own 9 of the top 10 names on the list within our prudently-diversified, 38-stock, Income Equity Portfolio. Without further ado, here is the list.

10. Omega Healthcare Investors (OHI), Yield: 7.1%

Omega is an attractive and unique triple-net-lease healthcare REIT, focused primarily on Skilled Nursing Facilities (“SNF”). And while its high reliance on government funding (through Medicare and Medicaid) puts pressure on growth, it also provides a safety net during challenging times (such as a pandemic). Further, long-term demographic shifts suggest demand for Omega’s SNF properties will grow. Also, the company has opportunities for further growth through industry consolidation (M&A). Omega is the industry’s largest player, but still only has 5% market share, thereby leaving more room for growth through acquisitions.

And importantly, Omega’s dividend is big, well-covered (the payout ratio is healthy), and it has grown for 17 years in a row. Per Omega’s CEO, Taylor Pickett, during the most recent earnings call:

We are very pleased with our strong first quarter results. Our adjusted FFO of $0.85 per share and our funds available for distribution of $0.81 per share allowed us to maintain our quarterly dividend of $0.67 per share. The payout ratio is 79% of adjusted FFO and 83% of funds available for distribution. Additionally, for the first quarter ended in April, we collected virtually all of our contractual rents.

Omega is coming out of the pandemic nicely, and we recently completed a detailed members-only report on shares. And if you are willing to accept the unique risks of this 7.1% dividend yield healthcare REIT, it’s worth considering for a spot in your prudently diversified portfolio.

One Risk of Screening for Big Strong Dividends:

One risk of running a screen like the one we shared earlier is that some attractive opportunities get missed altogether. For example, our screener omitted closed-end funds, and in doing so it missed an exceptionally attractive and unique opportunity that offers a big safe dividend yield.

9. Reaves Utility Income Fund (UTG), Yield: 6.1%

As mentioned, the Reaves Utility Income Fund doesn’t show up on our screen (because it’s a closed-end fund, not a stock), but it does offer an extremely attractive big strong distribution yield (paid monthly) that is absolutely worth considering.

For starters, the Reaves Utility Income Fund is a closed-end fund that focuses on the utilities sector (currently among the highest yielding sectors). Next, the big dividends are paid monthly (attractive) and they are healthy (generally based on long-term gains and income, not short-term gains or a return of capital). Further, this fund uses a little bit of prudent leverage (borrowed money, currently 15.7%) to magnify the income paid to investors (also attractive). Finally, the shares trade at a relatively attractive price as compared to the net asset value of the fund (the 3-month, 6-month and 12-month z-stats are all fairly close to zero). And finally, the utilities sector remains increasingly attractive if and when inflation continues to ramp up (as many investors increasingly believe it will). We recently completed a detailed subscribers-only report on UTG, and concluded it with the following:

If you are an income-focused investor, there’s lots to like about the Reaves Utility Income Fund, including its big monthly dividend (it currently yields 6.2%), the steadiness of the utilities sector, the prudent use of leverage, the tax-advantages (particularly if you’re going to own it in a taxable account), and the current price (considering inflation may bode well for the utilities sector in general)

We currently own shares of the Reaves Utility Income Fund.

8. Ares Capital (ARCC), Yield: 8.0%

Ares Capital is a business development company (“BDC”), which means it basically provides financing to smaller and mid-sized businesses in the form of debt and equity investments. And Ares has some pretty clear advantages over its peers, such as its large size, seasoned management team and strong balance sheet (more on these in a moment). And as you can see in our early list of the biggest strong dividends, Ares has both a solid dividend growth track record as well as earnings per share that greatly exceeds its dividend per share (and its net investment income per share also exceeds its dividend per share over the last two quarters in aggregate). In fact, Ares recently grew its track record to 46 consecutive quarters with stable to growing dividends (i.e. no dividend cuts).

For a little more perspective, here is a look (see table below) at how Ares compares to other BDCs in terms of important metrics like market cap, dividend yield, valuation (price-to-book ratio) and recent performance.

*(source: StockRover.com, data as of 09-Jun-21)*

First, Ares is the largest BDC in terms of market capitalization. This is both the result of, and a reason for, Ares’ outstanding resources, including capital and access to deal flow. As we wrote in our recent subscriber-only report on Ares:

Also very important, ARCC derives significant benefits from its relationship with global alternative investment manager, Ares Management Corporation (ARES). Ares Management Corp. operates integrated businesses across multiple asset classes such as credit, private equity, real estate and strategic initiatives. And as a part of the Ares group, ARCC derives multiple benefits in the form of investment origination leads, flexible access to capital, augmented market reach and also a pool of highly experienced investment professionals that help drive long-term performance.

Another thing you’ll notice about Ares is its relatively attractive valuation. For example, it currently trades at only 1.0x its book value, which is low compared to its all time highs, and low compared to many of its peers. Additionally, considering our current economic environment (e.g. low credit spreads and ongoing re-opening recovery) there are lots of things to like about Ares. You can read all the details (including about the business, the balance sheet, liquidity, valuation and risks) in our recent subscriber-only full report on Ares, but know that we like it enough to own it (we currently own shares) and to highlight its attractiveness in this report.

7. Main Street Capital (MAIN), Yield: 5.9%

The next name on our list is also a BDC, but this one is attractive for similar and different reasons. Similar to Ares (and as you can see in our earlier table of the biggest strong dividends), Main Street (MAIN) also maintained its dividend throughout the pandemic crisis (it’s actually never reduced its dividend throughout its entire 13 year history as a public company) and its dividend is well covered by its earnings per share (it’s well covered by its distributable net investment income per share too). However, Main Street is different because it pays dividends monthly and because it is internally managed (both of these qualities have their advantages). Additionally, Main Street’s target loan size niche is generally smaller than Ares (another important differentiator).

Another thing you’ll notice about Main Street (in our BDC table in the Ares section), is that it has the highest price-to-book value among the major BDCs. This is nothing new, in fact this premium valuation has persisted throughout most of the company’s history, as investors are willing to pay a premium for access to Main Street’s niche portfolio investments, internal management team and monthly dividend. For a little more perspective, here is a look at Main Street’s historical price-to-book value.

We are comfortable with the price-to-book value of Main Street, despite the risk factors (as we described in our recent members-only full report, such as the inherently higher risks of the smaller companies Main Street lends to, interest rates and sensitivity to overall macroeconomic conditions, to name a few). In our view, the risks are outweighed by the attractive qualities (including the dividend) and we continue to own shares of Main Street Capital.

6. Adams Natural Resources Fund (PEO), Yield: +6.0%

If you are an income-focused investor that is concerned about inflation, the Adams Natural Resources Fund currently presents a very attractive investment opportunity. Not only does it pay a distribution of at least 6% every year (its been paying distributions for over 80 years—you read that right, 80 years), but its 53 current holdings offer an excellent hedge against inflation. Further still, it trades at a very attractive discount to its NAV.

We recently completed a detailed members-only write-up on PEO, but the main takeaway is that if you like big steady income that offers an attractive inflation hedge and upside price appreciation potential, PEO is absolutely worth considering. One additional thing to keep in mind on this one is that it pays three smaller quarterly dividends in Q1-Q3, followed by a big annual dividend in Q4 (which is still coming up later this year). We currently own shares of PEO.

5. Triple Point Venture Growth (TPVG), Yield: 8.7%

Too much diversification is a waste because it takes away your ability to customize your portfolio to meet your own personal needs. However, having a prudent level of diversification is one of the best tools investors have to reduce investment risk. And Business Development Company (“BDC”) TPVG offers some attractive, uniquely-diversified, high income to investors. Unlike most high-income payers, this one invests in growth stage companies and sectors that don’t usually offer any income. Specifically TPVG makes growth capital loans, equipment financings, revolving loans, and direct equity investments mainly in the e-commerce, entertainment, technology and life sciences sectors.

We recently completed a detailed report on TPVG for our members, and the key takeaway is that it is attractive and worth considering if you are looking to add a diversified source of high income to your portfolio. We currently own shares.

4. Realty Income (O), Yield: 4.0%

Realty Income is one of the most renowned dividend stocks. Its monthly dividend track record has earned it the nickname ‘The Monthly Dividend Company’. It has made 610 consecutive monthly payments and raised its dividend for 95 quarters in a row. Since March 2020 (when COVID-19 hit the world), the company has raised its dividend four times. Some investors are nervous about the recent strong performance of this REIT, but the reality is, Realty Income is always a buy (unless something draconian happens to the business).

We completed our last full members-only report on Realty Income two quarters ago, and since that time a lot has happened to support our ongoing rating of the shares as a “Buy.” For example, it again beat FFO and revenue guidance in its most recent earnings release, and with increasing economic re-openings (thanks to vaccines) Realty Income remains very attractive. We also like the recent acquisition of Vereit, considering the two companies’ office properties will be combined and then spun off into a separate company. This is a smart move given the ongoing challenges for office real estate, and it will allow the company to divest of its more opportunistic (office) properties, thereby leaving Realty Income’s core business as strong as ever. Realty Income is among the biggest safest dividends around, and we continue to happily own these shares as a long-term income-focused investor.

3. W.P. Carey REIT (WPC), Yield: 5.4%

W.P. Carey is one of the largest net-lease REITs benefiting from the unmatched diversity in its portfolio and its deep expertise in sale-leasebacks. The portfolio has displayed very strong resilience to the pandemic, as its rent collections have remained strong throughout, and as the company continues to wisely reposition its portfolio into more attractive real estate sectors going forward.

It also has an impressive dividend history with consecutive dividend increases every year since it went public in 1998. We are also encouraged by its successful track record of operating through economic downturns and using them to build and grow a high-quality portfolio through opportunistic investing. Despite all the odds in favor, this REIT is still priced too low. In fact, at the current price, WPC offers an attractive investment opportunity from an income generation, capital preservation, and capital appreciation perspective. We recently completed a detailed members-only report on WPC, and we continue to own shares.

Honorable Mention: PIMCO Dynamic Credit & Mortgage Income (PCI), Yield: 9.3%

The PIMCO Dynamic Credit and Mortgage Income Fund (PCI) is a closed-end fund that invests in a variety of mortgage-related securities and other debt instruments, and it is attractive. Not only does it offer a high yield (paid monthly), but its current holdings trade at a slight discount to par value (~$95.44 per $100, per CEF Connect). It also has a long history of generating its distribution from the income generated by its underlying holdings (instead of using short-term capital gains or return of capital). It’s managed by the preeminent fixed income manager (PIMCO), and it uses a prudent amount of leverage to help magnify the income in pays to investors. Like most PIMCO bond funds, PCI trades at a premium to net asset value, however the premium is smaller than other PIMCO CEFs and the share price recently pulled back creating for a more attractive entry point.

We’ve owed this one for a while, and generated a lot of high income. And we like this fund based on the US Fed’s demonstrated commitment to supporting the types of mortgage securities PCI owns, especially during times of distress, as the fed’s open market operations following the onset of the pandemic helped support the economy overall and this fund in particular. If you are looking for an attractive high-income producer, this one is worth considering. We currently own shares, and have no intention of selling anytime soon.

2. Enterprise Products Partners (EPD), Yield 7.2%

If you are looking for big safe income, this midstream operator remains very attractive, especially in the face of rising energy prices and inflation in general. EPD operates as a Master Limited Partnership (MLP), and has consistently maintained its distribution throughout the pandemic (while other midstream MLPs were cutting). Further, it’s actually increased the distribution 22 years in a row, and insiders have a large stake in the company.

We recently completed a detailed members-only report on EPD, and it remains a very attractive “buy” in our view (we continue to own shares).

1. Owl Rock Capital (ORCC), Yield: 8.5%

Owl Rock Capital is a relatively new BDC, but it’s well established and large, and it has a strong balance sheet and ample access to attractive deal flow. Like other BDCs, it faced challenges during the pandemic, but has come through relatively unscathed, and continues to use market dislocation to optimize its investments. And while Net Investment Income (“NII”) has been challenged in recent quarters, the solid investment grade balance sheet enables the company to easily support the dividend payments. And importantly, management expects the NII dividend coverage ratio to continue to strengthen (including the return of special dividends), and based on recent portfolio optimization efforts, we believe them. Overall, this particular BDC presents an attractive investment opportunity, as near-term nervousness still keeps the price slightly below the book value, something we expect to change in the quarters ahead as dividend coverage (and the overall business) continues to strengthen.

If you are a long-term income-focused investor, Owl Rock is worth considering. We currently own shares.

Conclusion:

Of course there are additional attractive high-dividend opportunities available in the market (beside the 10 in this report), and we have highlighted more than 25 more of them (that we currently own) within our prudently-diversified, long-term Income Equity Portfolio. However, we like the additional names in that portfolio for various reasons. For example, some are special situations that are extremely attractive despite the fact that the dividend payouts may have been recently “adjusted” during the pandemic (such as Simon Property Group, for example). Other names are highly attractive, but don’t offer as high of a dividend yield (such as Prologis (PLD) for example).

However, at the end of the day, you need to construct a portfolio that is right for you. Low interest rates and inflation are two big challenges of our time, but everyone has their own unique goals, needs and risk tolerance. Just know that disciplined, goal-focused, long-term investing will continue to be a winning strategy.

You can view all of our current holdings here.

Top 10 Big Dividends: Income Ahead of Inflation