Massive Yields From Little-Known “Secret Payouts”
“Secret” Dividend Stocks Yield Up to 7%
I once read about a British solider during World War II trying to make his way through occupied territory. He got a cow and led it along the roads back to his base.
No one batted an eyelid. The Nazis must have thought he was a local farmer. The solider walked right through enemy lines, hiding in plain sight.
The same thing happens on Wall Street. Many dividend stocks pay out big yields, but investors skip right over them. That’s because popular investment sites like TheStreet.com and Yahoo! Finance often misreport the total yield these firms deliver.
How is this possible? Most sites use a shorthand method to calculate a stock’s annual dividend yield. They do this through multiplying the most recent payout by the distribution frequency.
This number, however, often misses irregular, or special, dividends. As a result, the published yield you see may show something under two percent. The stock’s real yield, however, could be much, much higher.
I call them Wall Street’s “Secret Payouts”–big, huge yields hiding in plain sight. For those willing to do the extra legwork, they can represent lucrative sources of dividends.
Case in point: Main Street Capital Corporation (NYSE:MAIN). This firm lends money to mid-sized businesses and passes on the profits to owners. And because management has stuck to the most credit-worthy borrowers, this stock has emerged as a reliable income stream for investors.
Here’s the thing. If you check Yahoo! Finance, you’ll see the dividend reported as $2.22 per share. Based on the current stock price, that comes out to an annual yield of 5.7%.
This number, however, isn’t entirely correct. The computers at Yahoo! and other financial web sites fail to account for irregular dividends. Main Street mails a supplemental distribution every six months, in addition to its regular payout.
The last special dividend was $0.28 per share. We have no assurances Main Street will do this again each year. But assuming management sticks to this policy, the trailing yield on this stock jumps to seven percent.
Illinois-based insurer RLI Corp. (NYSE:RLI) makes for another great example. At first glance, this stock pays out a yield of only 1.5%. Not bad, but hardly enough to knock your socks off.
But if you dig a little deeper, you’ll find the company pays an annual dividend in addition to its quarterly payout. These irregular payments can be as much as 10-times bigger than the ordinary distribution.
Source: “RLI Corp. (RLI),” Yahoo! Finance, last accessed June 14, 2017.
Last year, the special dividend came in at $2.20 per share. Once again, we can’t guarantee RLI will pay out a special dividend in 2018. But assuming the company follows suit, the yield on this stock jumps to five percent.
Neither of these names represent formal buy recommendations. They illustrate, though, how some high-yield stocks might be hiding in plain sight. If we didn’t take a second look at the payouts, many investors would look right past them.
These secret dividends can make a valuable contribution to any income portfolio. Sure, they take some extra work to find. But for those willing to go the extra mile, it can pay off.