Investors loveDividend stocks, particularly those with extremely high yields, are favored because they generate a strong income source and have considerable potential for overall returns. Total return encompasses interest, capital gains, dividends, and other distributions received over time. In essence, the total return on an investment or portfolio is made up of both income and growth in the stock’s value. At 24/7 Wall St., we regularly highlight the power of total return to our audience. It is one of the most efficient methods to boost the chances of successful investing. Once more, total return means the combined growth in a stock’s value along with the dividends received.
24/7 Wall Street Key Points:
- When the Federal Reserve reduces interest rates, ultra-high-yield stocks may experience significant gains.
- Ultra-High-Yield stocks serve as top performers for passive income and overall returns.
- In a stock market that is fully valued, ultra-high-yield stocks may present a more secure investment opportunity at this time.
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Business DevelopmentBusiness Development Companies (BDCs) are a category of publicly listed firms in the United States created to offer funding to small and medium-sized enterprises. BDCs operate under the regulations of the Investment Company Act of 1940 and concentrate on investing in private enterprises, typically through loans or equity participation. Their objective is to create returns for shareholders by supplying capital to companies that might not qualify for conventional financial support.
Some ofthe main characteristics of BDCs:
- Purpose: Assist expanding companies by offering loans, mezzanine capital, or equity funding.
- StructureLike REITs, BDCs are required to distribute a minimum of 90% of their taxable income in the form of dividends to shareholders in order to receive advantageous tax treatment.
- Investments: Usually concentrate on private or struggling businesses, providing greater returns but with higher risk.
- AccessibilityListed on public stock markets, allowing individual investors to purchase them.
We screenedOur 24/7 Wall St. BDC research database reveals that three of our preferred companies in the sector are all exceeding the performance of the S&P 500 this year, with one standing out as significantly surpassing the well-known index. All of them have a ‘Buy’ rating from the leading Wall Street firms we track.
What is the reason for covering ultra-high-yield dividend stocks?
While notIdeal for all individuals, those aiming to establish robust passive income sources can achieve remarkable results by including some of the leading companies in their investment portfolios. When combined with more stable, well-established dividend-paying stocks, investors can adopt a barbell strategy to create significant passive income streams.
Main Street Capital
Main StreetCapital has supported more than 200 private businesses in their growth or transition phases by offering adaptable private equity and debt financing options. This firm is popular with Wall Street investors and delivers a significant dividend, which has increased by 15.44%, almost twice the S&P 500’s 8.49% gain. Main Street Capital Corporation (NASDAQ: MAIN) is a private equity company that supplies equity funding to lower-middle market enterprises.
The firm alsooffers debt financing to mid-sized businesses for:
- Acquisitions
- Management buyouts
- Growth financings
- Recapitalizations
- Refinancing
The firmaims to collaborate with startup founders, company proprietors, and leadership groups, offering typically “comprehensive” financial solutions in its lower middle-market range.
Main StreetPrivate equity firms generally focus on investing in companies within the lower-middle market that generate annual revenues between $10 million and $150 million.
The firm’sMiddle market debt investments target companies that are typically larger compared to those in the lower middle market portfolio. It also involves both majority and minority equity positions.
RBC Capitalhas a Buy rating, although the target price could not be verified.
Sixth Street Specialty Lending
This isanother highly successful BDC that is surpassing the S&P 500, with an 18.21% increase versus the S&P 500’s 8.49% rise. Sixth Street Specialty Lending Inc. (NYSE: TSLX)is a financial services firm that specializes in providing loans to companies in the middle market.
The Companyaims to produce immediate income mainly by directly originating senior secured loans in U.S.-based middle-market companies, as well as to a smaller degree, through originating mezzanine loans and investing in corporate bonds, equity securities, and other financial instruments.
It investsin:
- First-lien debt
- Second-lien debt
- Mezzanine and unsecured
- Equity and other investments
The company’sfirst-lien debt may include:
- Stand-alone first-lien loans
- Last-in, first-out loans, which are loans that have a lower priority compared to super-senior first-out first-lien loans
- Unitranche loans, which are financial instruments that incorporate elements of both first-lien and second-lien debt
- Subordinated debt, typically held in a first-priority position
- Corporate bonds that are secured and have characteristics similar to these types of first-lien loans
Raymond Jameshas given an Outperform rating, with a projected price of $23.
Trinity Capital
Based in Phoenix,This business development company offers a significant dividend and has performed better than the S&P 500, with a return of 9.51% versus the broader index’s 8.49%. Trinity Capital, Inc. (NASDAQ: TRIN) is an internally managed, closed-end, non-diversified management investment company that functions as a business development company.
Trinity Capitalis a specialized financial services firm that offers debt solutions, such as loans and equipment financing, to companies in the growth phase, including those backed by venture capital and firms with institutional equity backers.
Its investmentThe goal is to create immediate income and increase in value by investing in five different market sectors.
The companyaims to reach its investment goal by making investments that mainly include:
- Term loans
- Equipment financings
- Working capital loans
- Equity and equity-related investments
Its equipmentFinancings refer to loans intended for general or specific purposes, such as purchasing equipment that is collateralized by the equipment or other assets of the portfolio company. These focus on investments in companies in the growth phase, which are usually private and frequently involve businesses supported by institutional investors.
UBS has a Buyrated with a $17.50 price target.
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