5 Fat Dividend Yields to Consider
Dividends from healthy, growing companies deliver to us, like mail carriers, in any kind of weather -- boom, bust, or stalled economy.
As 2012 drew to a close, I offered some high-yield dividend payers for you to consider. There are a lot of other promising income-generating stocks out there, though, and the year is still young, so if you've been meaning to add some dividends to your portfolio, read on for additional ideas.
Below are a few companies about which you might want to learn more. Note that several are master limited partnerships (MLPs), which offer some tax advantages as well as some complications. Note, too, that very high yields are sometimes tied to riskier stocks that have fallen in value. Be sure to research such companies carefully before jumping in.
Sasol : With a market cap near $28 billion and a dividend yield of about 6%, Sasol is a giant in the energy and chemical fields. Instead of being an ordinary explorer or refiner of oil, it specializes in coal-to-liquid technology (CTL) and gas-to-liquid technology (GTL), producing liquid fuels such as diesel. It's buoyed by low natural gas prices, and with America's significant shale fields, prices may well remain low for some years. Its dividend has grown by an annual average of about 11.8% over the past five years, and its relatively low payout ratio of 42% suggests plenty of room for further growth. Sasol's great geographic diversification spreads its risks around, but it also delivers occasional challenges, such as when sanctions were imposed on Iran. Sasol is based in South Africa.
Ares Capital , recently yielding 9.5%, is a business development company (BDC), which is a kind of private equity company that's publicly traded, permitting small investors to be co-owners via stock. Like some other kinds of companies, BDCs have to pay out at least 90% of their earnings as dividends, so they can serve income-seeking investors rather well. Ares focuses more on senior debt and secured loans and less on subordinated debt or equity. Its portfolio features more than 150 companies that it has financed. A few years ago, Ares swallowed beleaguered fellow BDC Allied Capital, and its revenue has swelled considerably since then.
Penn West Petroleum is down about 50% over the past year, which has boosted its dividend yield to 10.8%. That's certainly appealing, but be careful because the company is paying out about three times more than its earning per share. The company, which drills for both oil and gas, has been struggling in an environment of low natural gas prices and has been selling some assets to raise money. Plenty of investors remain hopeful, perhaps due to its development of oil sands. But some Wall Streeters are less hopeful, seeing it as overvalued even at recent low levels.
Omega Healthcare Investors , a real estate investment trust (REIT) focused on health care, is yielding 6.5%. It, too, has a payout ratio higher than we'd like to see, with payouts surpassing income. The dividend has been hiked by an annual average of more than 20% over the past five years, and that rate might not continue without stronger top- and bottom-line growth. Revenue has been growing by double digits, though. In 2012, the company's revenue from operations rose 20%, funds from operations advanced 29%, and net income more than doubled. Management expects to spend $200 million on investments in 2013, and has lowered its cost of borrowing, profiting from our environment of low interest rates. Omega specializes in nursing homes and stands to benefit as our population ages. Some worry, however, that health-care reforms will pressure the company to cut costs more.
Breitburn Energy Partners hasn't been upping its dividend markedly in recent years, but with a recent yield of about 9.6%, that's hard to complain about. Its revenue and earnings have been volatile in recent years, but have generally been heading upward. Bulls like that, as well as the long expected life of its oil and gas reserves, its hedging practices, and its solid balance sheet. Bears worry about whether it will be smart in its acquisitions and whether it might need to reduce its dividend, which it has done in the past.
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The article 5 Fat Dividend Yields to Consider originally appeared on Fool.com.Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Sasol. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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