Many people are surprised to learn that dividend income and reinvestment can account for up to 90% of total stock market returns over time, according to Guinness Atkinson Funds.
You heard that right: 90%.
Even if you choose not to reinvest – if you want income right now, quarter after quarter or even month after month – dividends can be extremely powerful income-generators to secure your “second salary.”
Since 2000, companies like McDonald’s Corp. (NYSE:MCD), for example, have raised their payouts by more than 1,650%, thrashing inflation growth and enriching investors from a growing income stream.
As you can see, dividends can work magic when it comes to reaching your financial goals and a safe retirement. In bull markets like today’s, they move up alongside companies’ earnings. They’re also fantastic insurance against market corrections, and indispensable when the Federal Reserve is punishing savers and income investors by keeping interest rates near zero.
Especially enticing are dividend-paying stocks with yields in the double digits (10%+). These are rare: of the more than 3,000 stocks listed on the NASDAQ, only a select 6% have double-digit dividend yields. But that still leaves more than 200 to choose from on the NASDAQ alone.
Many income investors narrow the field down further by simply going for the stocks with the highest dividend yield. But a company’s ability to keep paying and increasing their dividend is just as important in the long term, if not more.
That’s why we’ve assembled this list of my favorite double-digit dividend payers that have the business models that can sustain high yields for years to come.
Let’s take a look.
1. Chimera Investment Corp. (NYSE:CIM)
| Chimera Investment Corp. (NYSE:CIM)
Price: $18.25 Yield: 11.1% Annual Payout: $2.00 (paid quarterly) Dividend Growth: 257% since 2014 |
Our first income boosting opportunity is an investment class that dates back to the Eisenhower era – a security he signed into existence via a little-known act called the Cigar Excise Tax of 1960.
When Ike put pen to paper, he gave birth to Real Estate Investment Trusts, better known as REITs – a one-stop-shop opportunity for individual investors like you and me to invest in income-producing real estate.
Most recent numbers show that more than 200 REITs in the U.S., but only a small handful of them are generating the juicy dividends that are essential to your “second salary.”
And that brings me to Chimera Investment Corp. (NYSE: CIM) – one of my favorite REITs available, thanks to its diverse portfolio grounded on agency residential-mortgage backed security (RMBS), non-agency RMBS, agency commercial mortgage-backed securities (CMBS), residential mortgage loans and real estate related securities.
What does that mean for you?
Well…
With CNBC reporting that the average working person aged 56-61 has $163,577 to their name, the 11.1% yield would bring in $17,993 a year, or a hair under $1500/month.
According to the most recent earnings reports, Chimera Investment Corp. has increased net income from $162 million to $239 million YOY.
But even more appealing is the fact that Chimera, since evolving to an internally-managed trust, has outperformed its peers at an incredible rate. Check out the chart below (2016-present).
A series of acquisitions throughout recent years even further bolsters this REIT’s appeal. Since 2014, Chimera has acquired more than $14 billion in seasoned performing loans through bulk transactions, bringing the total portfolio composition of loans to 63%.
With that triple-digit growth and a market cap of $3.4 billion, Chimera has the financials to support a consistent stream of dividend income – especially as it’s surrounded by a real estate market undergoing consistently positive upward momentum.
I should also point out that REITs, are required by the SEC to return 90% of taxable income to shareholders annually.
…in the form of dividends.
2. Oxford Lane Capital Corp. (NasdaqGS:OXLC)
| Oxford Lane Capital Corp. (NasdaqGS:OXLC)
Price: $10.80 Yield: 15.0% Annual Payout: $1.62 (paid monthly) Dividend Growth: Steady |
Oxford Lane Capital Corp. (NasdaqGS:OXLC) is a mutual fund that invests in collateralized loan obligations (CLOs), which are collections of secured corporate loans underwritten by banks.
Most investors are unfamiliar with CLOs, but they have a number of advantages over bonds and other sources of yield that allow Oxford Lane to carry a dividend yield of 15%.
First, unlike the sub-prime mortgage-based collateralized debt obligations (CDOs) that caused so many problems during the 2008 financial crash, CLOs fared well even as the markets collapsed around them. In fact, investors who kept their CLO investments during the crash or bought in at the bottom saw annual returns of up to 20%.
Second, unlike high-yield bonds, CLOs contain corporate loans underwritten by banks and secured by corporate assets, resulting in much lower credit losses.
Third, the banks that create CLOs can borrow at very low interest rates, allowing them to leverage their CLOs and boosting their return-on-equity to 20 to 30%, much higher than any bond.
And to make the quarterly dividend payments even more secure, Oxford Lane’s policy is to pay its dividend only from actual cash-flow from the fund’s investment portfolio, meaning that the fund itself is not overly leveraged.
To add to the dividend support, shareholders have enjoyed a dividend yield of over 46% since inception.
To put that in real numbers for you, the average working person would get a whopping $24,536.55 annual payout from dividends alone — working out to a monthly “paycheck” worth $2,044.71.
3. Oxford Square Capital Corp. (NasdaqGS:OXSQ)
| Oxford Square Capital Corp. (NasdaqGS:OXSQ)
Price: $7.15 Yield: 11.2% Annual Payout: $0.80 (paid quarterly) Dividend Growth: Declining |
During the stagflation of the early 80s, Washington D.C. created an unconventional security that allows regular investors to help fund promising private startups. The result was the Business Development Corporation (BDC).
BDCs are extremely powerful income generators because of their tax structure. Simply put, they’re taxed as regular investment companies and therefore pay little to no corporate income tax so long as they distribute at least 90% of their income to investors.
This requirement means that the right BDCs can be income machines for investors. Double-digit yields aren’t at all unusual – and they’re often sustained for years.
And that’s the opportunity I’ve found for you today with Oxford Square Capital Corp. (NasdaqGS:OXSQ).
The BDC offers a stunning 11.2% yield, which is enough to generate $11,200 a year in income for every $100k stowed away – before we even start talking about capital gains.
Again, for the average working person, this 11.2% yield would mean an $18,320 income stream a year – which amounts to $1,525/month of taxable income.
Despite its generous payouts to shareholders, Oxford Square is highly profitable, with a profit margin of 76% and operating cash flow of over $100 million.
What’s especially exciting about Oxford's prospects as an income investment to buttress anyone’s retirement is the fact that it continues to re-invest in itself, even as it pays shareholders (generously) first.