Three “Boring” Dividend Stocks Yielding Up to 13.9%
Boring Stocks Providing Exciting Dividend Streams
For yield-seeking investors, few things are better than a “boring” dividend stock with a big payout.
Exciting businesses, such as companies at the frontier of the tech sector, often have to reinvest a significant portion of their profits (if they have any) just to stay relevant. That leaves them with limited resources to pay a dividend. At the same time, companies pursuing exciting projects are often highly sought after, meaning investors would likely have already bid up their share prices.
Boring businesses, on the other hand, usually don’t require too much reinvestment. And because they are often found in the overlooked sections of the stock market, their share prices could be more reasonable, and they could still offer some pretty substantial yields.
So today, let’s take a look at three boring dividend stocks yielding up to 13.9%.
List of 3 Boring Dividend Stocks with Huge Yields
|Company Name||Stock Exchange||Stock Ticker||Dividend Yield|
|STAG Industrial Inc||NYSE||STAG||5.9%|
|Monroe Capital Corp||NASDAQ||MRCC||11.4%|
|Energy Transfer Partners LP||NYSE||ETP||13.9%|
Stag Industrial Inc
Compared to fancy shopping malls and shiny office buildings, industrial warehouses are probably the most boring type of real estate assets. However, that doesn’t mean they can’t generate exciting returns.
Case in point: STAG Industrial Inc (NYSE:STAG) owns and operates a portfolio of 356 industrial properties located across 37 states. And it pays oversized dividends.
You see, most dividend-paying stocks distribute on a quarterly basis. STAG Industrial, on the other hand, pays monthly dividends of $0.1183 per share, giving STAG stock an annual yield of 5.9% at the current price.
The reason behind the company’s generous dividend policy lies in its unique investment strategy. STAG Industrial specializes in single-tenant industrial properties. Because a single-tenant building is either fully occupied or completely vacant, it has higher potential volatility in cash flows. As a result, investors don’t always want to own them, leading to lower property prices.
And that has created an opportunity for STAG Industrial. Because the company owns hundreds of properties, it can mitigate the binary risk cash flows associated with single-tenant properties. Moreover, due to the lower property prices, STAG Industrial can lock in a handsome return on its investments. In 2017, the company acquired $613.0 million in industrial properties at a weighted average capitalization rate of 7.4%. (Source: “Investor Presentation Winter 2018,” STAG Industrial Inc, last accessed March 29, 2018.)
The payout is also safe. In 2017, STAG Industrial generated core funds from operations (FFO) of $1.69 per diluted share, representing a seven-percent increase from 2016. Moreover, the company’s core FFO was more than enough to cover its total dividends of $1.4052 paid for the year. (Source: “STAG Industrial Announces Fourth Quarter and Full Year 2017 Results,” STAG Industrial Inc, February 15, 2018.)
Monroe Capital Corp
With the simple business model of lending money out at higher interest rates than they borrow at, banks have been making sizable profits for centuries. But because investors love this boring business model, today’s well-known bank stocks rarely offer yields north of five percent, which is exactly why Monroe Capital Corp (NASDAQ:MRCC) deserves your attention.
Monroe Capital Corp is not a conventional bank, because it doesn’t have branches for you to walk into and open a checking account. Instead, the company specializes in lending to lower-middle-market businesses in the U.S. and Canada.
Since lower-middle-market companies are considered less established than giant corporations, large banks don’t usually lend to them. As a result, they have to pay higher borrowing costs to get financing. For lower-middle-market lenders like Monroe Capital Corp, that has translated to a tidy interest income stream.
As of December 31, 2017, Monroe Capital Corp’s portfolio consisted of investments in 72 companies coming from more than 10 different industries. Approximately 87% of its portfolio is made up of first-lien secured loans. As a first-lien lender, Monroe Capital Corp will be the first one standing in line to get paid if the borrower defaults and goes through liquidation. (Source: “Company Overview,” Monroe Capital Corp, last accessed March 29, 2018.)
And because Monroe Capital Corp is structured as a business development company, it must distribute at least 90% of its profits to shareholders via dividends. Right now, the company pays quarterly dividends of $0.35 per share, giving MRCC stock an annual yield of 11.4%.
In the most recent quarter, Monroe Capital Corp earned an adjusted net income of $0.35 per share, providing just enough coverage for its quarterly dividend payment of $0.35 per share. While investors would probably want a wider margin of safety, note that the company’s adjusted net investment income has covered its dividend payment for 15 consecutive quarters. (Source: “Monroe Capital Corporation BDC Announces Fourth Quarter And Full Year 2017 Financial Results,” Monroe Capital Corp, March 14, 2018.)
Energy Transfer Partners LP
Energy pipelines are another type of boring business with exciting returns. When you hear about them in the news, it’s usually about a protest or a spill. But most of the time, pipelines just sit there, quietly transporting energy products and generating cash flows for its owners.
Energy Transfer Partners LP (NYSE:ETP) happens to be one of the biggest pipeline owners in the country, with a portfolio of more than 71,000 miles of natural gas, crude oil, natural gas liquids, and refined products pipelines. ETP also owns and operates the pipeline system’s associated terminaling, storage, and fractionation facilities in 38 states.
A key feature of the pipeline business is that the industry has extremely high barriers to entry. Energy pipelines are expensive to build. And if one set of pipelines is put in place and operating, it’s nearly impossible to obtain the regulatory approval to build another one running side by side. As a result, existing pipeline owners like Energy Transfer Partners can enjoy monopoly status in their operating regions, which often lead to oversized cash flows.
At the same time, a significant portion of ETP’s revenue comes from fee-based operations. This reduces the partnership’s direct exposure to commodity prices. (Source: “Morgan Stanley Midstream Energy Conference,” Energy Transfer Partners LP, February 28, 2018.)
With a fee-based business model and steady cash flows, Energy Transfer Partners can establish a generous distribution policy. The partnership currently pays quarterly distributions of $0.565 per unit, giving ETP stock a staggering annual yield of 13.9%.
For those concerned about this ultra-high yielder’s dividend safety, a look at the partnership’s financials should be reassuring. Last year, Energy Transfer Partners generated $4.2 billion in distributable cash flow while paying out $3.5 billion of total cash distributions, translating to a safe distribution coverage ratio of 1.2 times. (Source: “Energy Transfer Partners Reports Fourth Quarter Results,” Energy Transfer Partners LP, February 21, 2018.)