Where to Find “Hidden” Dividend Yields of 10%+
June 28, 2018
The Secret Source of Big Yields
The other day, I tore up my place looking for my wallet.
It took me over 20 minutes to find it. Turns out I left it sitting right out in the open, on the kitchen table.
Of course, I don’t usually keep it there. Because I always look in the same spots, I walked right by my wallet several times without noticing.
The same thing happens with dividend stocks. You have these wonderful businesses paying out yields ranging from seven percent to 15%, but, because they’re not in the places investors normally look, you can skip right pass them.
Case in point: Main Street Capital Corporation (NYSE:MAIN). Shares pay out a modest yield, at least according to Yahoo! Finance. But due to a glitch in the way most news sites report yields, this business in fact pays out quite a bit more.
Main Street Capital is pretty straightforward to wrap your head around: the firm has structured itself as a business development corporation (BDC). These firms lend money to small- and medium-sized businesses and collect interest.
And this small investment niche really represents the sweet spot of the economy right now. Thanks to heavy regulations, banks have dialed back lending to smaller businesses. As a result, most firms can’t raise the capital they need to run or expand their operations.
BDCs have stepped in to fill the gap. Because they have little in the way of competition, firms like Main Street Capital Corporation can charge high interest rates for their services.
Better still, these aren’t loans to startups or fly-by-night operations, either. Most of these loans go to established, profitable businesses with between $10.0 million and $100.0 million in annual sales.
Main Street Capital has established a great track record in lending to these businesses. Over the past five years, the company’s typical loans have trended between seven and nine percent, with little in the way of defaults.
But even in the event of a downturn, Main Street Capital enjoys senior status on most of their loans. So even if a borrower runs into trouble, they get paid before anyone else. For investors, this has resulted in a steady stream of distributions that rolls in like clockwork.
But now here is where things get interesting. If you check Yahoo! Finance, you’ll see the dividend reported as $2.28 per share.
That comes out to an annual yield of six percent. That yield is okay, but it won’t knock your socks off, either. I know many of my readers want to earn even better payouts than this. So, in most cases, they’d skip right over this business.
But while Yahoo! Finance isn’t wrong, it’s not entirely correct, either. In addition to monthly dividends, Main Street Capital Corporation mails a supplemental distribution every six months.
It’s a smart policy. Main Street Capital’s profits vary from year to year, so to reward shareholders during the good times (and protect the business during a downturn), management varies these extra payments with earnings.
Most financial sites, however, don’t include these extra payments in their yield calculations. And if we take into account these special dividends, the trailing yield on Main Street Capital shares jumps to nearly 10%.
Most retirees want to earn more investment income. Yet here we have a safe, almost-double-digit distribution hiding right out in the open. But because it’s not in the place most people look, investors skip right over it.
Of course, this stock isn’t the only example of Wall Street’s “secret” dividends. In my paid advisories, I often highlight these kinds of safe, hidden payouts to readers. Like searching for a lost wallet or keys, it never hurts to look for yield in different places.
