Uncover the Lesser-Known Corporation Providing a Consistent 11% Yield, Continuously Rewarding Regular Income Pursuers, and Enhancing Wealth of Persistent Investors Significantly
One of the best parts about investing your money on Wall Street is that you're not bound by any specific plans. With countless publicly traded companies and exchange-traded funds (ETFs) available, the chances of finding securities that matching your investment goals and risk tolerance are high.
However, among the numerous methods to build wealth on Wall Street, none have proven more successful over the long term than buying and holding high-quality dividend shares.
Dividend shares are potent on Wall Street
Companies that consistently pay out a dividend to their investors are almost always profitable, have a proven track record, and provide a clear long-term growth outlook. Essentially, they are established businesses that have shown investors they can endure challenging times and prosper during extended economic expansions. These are the type of companies we'd anticipate to increase in value in the long run.
But don't just take my word for it. Recently, the investment analysts at Hartford Funds updated their data from their report released last year (The Power of Dividends: Past, Present, and Future), which analyzed the outperformance between dividend shares and non-payers over the long term.
As per Hartford Funds, in collaboration with Ned Davis Research, non-payers produced an average annual return of 4.27% between 1973 and 2023, yet were 18% more volatile than the benchmark S&P 500. Conversely, dividend shares more than doubled the average annual total return of non-payers over the preceding half-century (9.17%), and were also 6% less volatile than the S&P 500.
Although dividend shares have demonstrated an impressive track record of making patient investors wealthier, studies have also shown that risk and yield tend to go hand in hand.
For instance, a company facing operational difficulties and a declining share price might attract income-seeking investors into a yield trap. Since yield is a function of payout relative to share price, companies with ultra-high yields (i.e., yields that are four or more times greater than the S&P 500's yield) require extra scrutiny from investors.
But this doesn't mean all ultra-high-yield dividend shares are problematic. With careful evaluation, ultra-high-yielding gems can be found. In fact, some of the safest supercharged dividend shares might be companies you've never heard of.
This might be Wall Street's safest 11%-yielding dividend share
Although mortgage real estate investment trusts (REITs) are the typical choice for investors seeking high yields, I'd argue there's an even superior way to secure a staggering annual yield and double your money every decade. Meet little-known business development company (BDC)PennantPark Floating Rate Capital (PFLT -1.29%), which is currently yielding 11% and dispensing $0.1025 per share on a monthly basis!
A BDC is a company that invests in the equity (common and preferred stock) and/or debt of middle-market businesses. "Middle-market" companies are often unproven micro- and small-cap businesses that may or may not be publicly traded.
When PennantPark disclosed its fiscal third-quarter operating results for the period ended June 30, it was managing a nearly $1.66 billion investment portfolio. Although it held an assortment of preferred- and common-stock equity totaling $208.6 million, the roughly $1.45 billion in debt securities it owns makes it primarily a debt-focused BDC.
Since most middle-market companies are unproven and lack access to basic financial services, PennantPark is able to generate a market-leading yield on its loans. During the June-ended quarter, its weighted average yield on debt securities was a scorching-hot 12.1%, which is almost triple the yield you'll receive from a 10-year Treasury bond.
The biggest advantage PennantPark Floating Rate Capital offers can be seen in its name. The entirety of its debt-securities portfolio is based on variable rates. With the Fed increasing interest rates at the fastest pace in four decades between March 2022 and July 2023, PennantPark's weighted average yield on debt investments climbed by a peak of 520 basis points from where things stood on Sept. 30, 2021.
Although the nation's central bank has begun its rate-easing cycle, returning to a historically low federal funds rate of 0% to 0.25% doesn't appear to be in the near future. With the Fed moving slowly in its monetary policy shift, there's a significant amount of runway for PennantPark to generate superior yields from its debt investments.
The steps PennantPark's management team has taken to protect its principal also account for its success. For instance, the company's approximately $1.66 billion portfolio, including equities, is spread across 151 companies, which averages out to an average investment size of $11 million. No stake is too substantial to disrupt PennantPark.
What's more, 99.9% of the company's debt investments (all but $1.2 million) are of the first-lien secured variety. First-lien secured debtholders find themselves at the front of the line for repayment in the event that a borrower seeks bankruptcy protection. Despite working with generally unproven businesses, only 1.5% of PennantPark's debt investments were on non-accrual (i.e., delinquent), as of June 30.
Ever since sharing its presence in 2011, PennantPark Floating Rate Capital has been a scorcher, giving its shareholders a whopping 187% return. This isn't exactly competing with tech titans on Wall Street, but it's an impressive feat for a monthly dividend disburser that maintains a remarkable 11% yearly payout rate.
Investing in high-quality dividend shares can be a profitable strategy in finance, as demonstrated by companies like PennantPark Floating Rate Capital. This business development company (BDC) consistently pays out dividends and has shown a market-leading yield on its loans, making it an attractive option for income-seeking investors.
Strategically investing in dividend shares can contribute to growing wealth over the long term, as evidenced by studies showing that dividend shares have outperformed non-payers over the past five decades while also being less volatile.
