You really can’t go wrong with dividend stocks. These stocks provide a stable long-term income stream, which complements the appreciation performance of the stock. And even if the share price goes down, you can still make money through the dividend. It’s a solid asset to add to any stock portfolio, and can be further enhanced by high-yield dividends, which can provide returns of 9% or more.
For investors looking for these high-yield dividend payers, the Street analysts are at work. They’ve been sorting through the stock div ranks and labeling some of the top 9%+ high-yield payers as Buys right now.
We used the TipRanks platform to get the details on two of these picks. Let’s dive in.
Capital of Hercules(HTGC)
We will start with Hercules Capital, a BDC or business development company. Hercules focuses its work on emerging companies, particularly those with a lean toward science and technology: life sciences, sustainable and renewable technology, and SaaS fintech. Hercules is a leading specialist finance provider in this niche, supporting a venture capital-backed clientele with access to credit services and growth capital financing.
Since its founding in 2003, Hercules has provided financing to more than 660 companies, totaling more than $21 billion in capital commitments. The company currently has more than $4.6 billion in assets under management.
Regarding dividends, Hercules has a long-standing commitment to maintaining returns on capital for shareholders. The company’s current regular dividend, last declared on October 28 for payment on November 20, was set at 40 cents per common share and was supplemented by a special dividend of 8 cents per share. The combined dividend payment, of 48 cents per common share, annualizes to $1.92 per share and offers a strong future yield of 9.75%.
That dividend is supported by Hercules’ financial results, which were reported in late October for 3Q24. The company’s total investment income for the quarter was $125.25 million, which management said was a quarterly record for the company. The investment income figure increased 7.3% year over year, although it missed expectations by $2.9 million. Ultimately, Hercules earned quarterly net investment income of 51 cents per share.
This BDC has caught the attention of JMP’s Brian McKenna, an analyst ranked among the top 2% of Wall Street stock experts, who is impressed by Hercules’ business strength. McKenna writes about the company: “Hercules continues to demonstrate its leadership position within the venture lending space and we are once again very pleased with the strength of the quarterly results, as well as the trajectory of the business to the end of the year. Lower base rates and tighter spreads will clearly be a drag on P&L going forward, but we also believe the company has demonstrated its ability to consistently generate ROE in the mid-to-high range throughout the cycle. . So while the stock trades at a healthy valuation multiple on paper, we believe the underlying results and outlook for the business more than justify this multiple.”
Quantifying his stance, the 5-star analyst gives an Outperform (Buy) rating on this stock, with a $22 price target pointing toward a one-year upside potential of 11.5%. If we add the dividend yield to this, HTGC’s one-year potential return increases to 21.5%. (To view McKenna’s track record, click here)
Overall, the stock has a Moderate Buy consensus rating, based on 6 recent reviews that split evenly into 3 Buys and Holds, each. The stock’s trading price of $19.7 and average price target of $20.29 combine to imply a modest 3% upside over the next 12 months. (See HTGC Stock Forecast)
Ares Capital Corporation(ARCC)
The second stock we will look at, Ares Capital Corp., is a BDC with 20 years of experience under its belt. The company operates as a provider of credit and financing services to the small business sector in the US market, the small and medium-sized businesses that are the traditional drivers of the US economy. Ares services are essential to its clients, providing them with the resources they need to thrive; in exchange, Ares earns the return on its various business investments.
Over its lifetime, Ares has built a portfolio with a fair value of $25.9 billion, as of September 30. The company has investments in 535 client companies, and those investments are backed by 240 private equity sponsors. The company’s portfolio is largely based on first lien secured loans, which represent 52.8% of the total. Second lien secured loans represent 10.6% of the total, and preferred equity securities represent 10.4% of the portfolio. By industry composition, Ares’ largest investment targets are the software and services sector (25.4%), healthcare services (12.8%), and business and professional services (10.7%).
The current dividend on the company’s common shares has been set at 48 cents per share and has remained at this level for 9 quarters. The dividend was last declared on October 30th for a December 30th payment. The 48 cent dividend annualizes to $1.92 per common share and the forward yield is currently 9%.
Regarding its financial results, Ares Capital Corp. reported 3Q24 numbers at the end of last month. The company showed total investment income of $775 million, more than 18% higher than the same period last year and $1.69 million ahead of expectations. Ultimately, however, the company’s non-GAAP earnings fell short; Earnings per share of 58 cents were one cent lower than expected.
The EPS loss didn’t bother RBC analyst Kenneth Lee, who is rated by TipRanks among the top 1% of Wall Street analysts, and who said of Ares Capital: “Credit performance remains strong; There is arguably less downside risk given the favorable macroeconomic backdrop. The focus is likely to be more on the downward interest rate cycle, given floating rate assets; Our updated model still includes multiple rate cuts and we continue to see well-supported dividends. Maintain our Outperform rating as we favor ARCC’s strong track record of risk management throughout the cycle, well-supported dividends and scale advantages.”
That Outperform (Buy) rating is backed by a $23 price target that indicates an 8% upside for next year. Adding dividend yield, the potential return here can reach up to 18%. (To view Lee’s track record, click here)
There are 10 recent Wall Street reviews on record for ARCC, and their breakdown includes 7 Buys and 3 Holds for a Moderate Buy consensus rating. The stock is priced at $21.33 and the average price target of $22.15 implies a 4% gain over the one-year horizon. (See ARCC Stock Forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
