Important News Regarding Your Subscription
We have some important news regarding your Daily Dividends subscription. Starting next week,
Daily Dividends will be merged into StreetAuthority Daily, our flagship newsletter.
As we mentioned on Monday, you'll continue to receive the same quality content with ideas and strategies for earning more income. But as an added bonus, you'll also gain daily access to more information and picks, courtesy of our StreetAuthority analysts. Don't forget to add us to your address book as soon as possible in order to ensure that you receive your newsletter without interruption, and be on the lookout for your first issue on Tuesday, May 31.
May 25, 2016
Uncover The 'Secret' Dividends
By Nathan Slaughter
We're approaching a major milestone. More companies are paying dividends, and those payments are getting increasingly larger as a percentage of profits. In fact, payout ratios recently reached 37%, and aggregate dividend payments among S&P 500 companies have totaled $410 billion over the past year.
That's more than $1.1 billion in dividends per day.
At least, that's the official count. The true payout is actually much higher because there are dozens of supplemental dividends that go unreported each quarter. By unreported, I'm not talking about some secret way of transferring cash to a select group of well-connected insiders. These extra payments are dished out openly and uniformly to all shareholders. But they are considered "special." As such, these distributions aren't reflected in the yields you see quoted on popular financial sites like Yahoo or Morningstar.
But trust me, the cash is just as green and spends just the same as any other dividend. And these special payments typically come in much bigger denominations, often 10 to 20 times larger than the firm's regular quarterly dividend.
There's no special trick or complicated system to capturing these dividends -- you just have to know where to look. For example, if you owned shares of the warehouse retail chain Costco (Nasdaq: COST) in November 2012, then you know exactly what I'm talking about.
At the time, Costco had some accumulated profits that it wanted to return to investors. So it announced plans to hand out a special dividend of $3 billion, or $7.00 per share.
Investors were eager to line up for that cash payment. At the time, the stock had a normal dividend of $0.275 per quarter. So the special distribution of $7.00 was equivalent to paying the next 26 quarterly dividends all at once.
Costco wasn't the only company in a giving mood. About that same time, casino resort owner Las Vegas Sands (NYSE: LVS) returned $2.4 billion ($2.75 per share) to its investors through a one-time cash payment. Department store owner Dillards (NYSE: DDS) got in on the act as well and decided to hand over $5.00 per share.
These were just three of 175 companies that made special dividend payments totaling $14.6 billion in November and December 2012. Granted, this was a period of unusually high activity. Dozens of companies were trying to beat the clock and avoid a possible dividend tax increase the following year. But even without that impetus, special dividends remain a popular way for companies to give a little something back -- if you can call a few billion dollars "little."
Where To Find Special Dividend Payers
Barely a day goes by where I don't see at least one or two announcements of upcoming special payments. And when I notice one that's particularly enticing, I always let my
High-Yield Investing premium subscribers know about it. Yet these special payments don't usually get much fanfare. Unless you have your ears glued to the ground like I do, you probably wouldn't even notice them.
But they are happening all the same.
Vodafone (Nasdaq: VOD) paid a special dividend of $1.26 per share in June. And that's actually modest for this type of transaction. Some distributions are much larger. Aircraft parts supplier TransDigm (NYSE: TDG) shelled out a one-time cash payment of $25.00 per share in June.
Not every company that pays a special dividend will be a viable investment candidate. To be honest, some are not worth your time. But there are plenty of attractive, financially sound businesses that have embraced this method of rewarding stockholders, including Dish Network (Nasdaq: DISH), Whole Foods Market (NYSE: WFM) and Microsoft (Nasdaq: MSFT).
That's why I created the High-Yield Investing Special Dividend-Payers Index. Every month, I showcase companies that are rewarding investors with special dividends. I also watch the proprietary StreetAuthority Special Dividend-Payers Index, which monitors the share price performance of companies that habitually return a portion of their annual profits through bonus payments.
This information is typically only available to my paid subscribers, but today I'll share my latest pick with you...
This 8.6% Yielder Makes 14 Dividend Payments A Year
Main Street Capital (NYSE: MAIN) is the only company I know of that makes 14 dividend payments a year -- 12 regular monthly payments and a pair of special distributions in June and December.
The company just approved ordinary dividends of $0.18 per share in April, May and June, totaling $0.54 for the quarter. In addition, we can expect the first semi-annual special dividend in the amount of $0.275 per share payable on June 27 to shareholders who purchase the stock before the ex-dividend date of June 16.
At the current rate, the company will distribute a total of $2.71 per share this year for a robust yield of 8.6%. You'll notice that sites like Yahoo quote a yield of 6.9%, but that figure only includes the regular dividends and doesn't reflect the special payments.
In any case, few reputable companies offer yields that are three to four times the S&P 500 average. And most that do are shaky at best. But this business development company has the financial clout to make these outsized payments.
Main Street specializes in lending capital to mid-sized private businesses with $10 million to $150 million in annual sales. The company has dozens of these borrowers in its portfolio, with an average weighted yield on these loans of 12.4%. Overall, it pocketed $32.1 million in interest income last quarter, along with $7.6 million in dividends and $2.0 million in fees -- for a total investment income of $42.0 million.
Main Street's operating overhead is the lowest in the industry, amounting to just 1.4 cents in expenses for every dollar of assets. Subtract out these costs, and the portfolio produced $28.7 million in distributable net investment income, or $0.57 per share.
That was more than enough to cover the $0.54 ordinary dividend -- for the 20th quarter in a row. Not once in its history has Main Street needed to cover a shortfall in its dividend by distributing a return on capital.
With another solid quarter in the books and a special dividend on the way next month, this 8.6% yielder is worthy of strong consideration.
Chief Investment Strategist
P.S. If pulling down yields of 10% or more every year (before capital gains) sounds good to you, then you need to see this... My
High-Yield Investing readers and I are pulling in up to 15.1% a year in dividend yields from little-known investments like the one I mentioned above. To learn more about these unique investments and how they just might change the way you invest forever,
follow this link.