3 best dividend-paying stocks you can buy right now
Investors turn to dividend-paying stocks for a reason: they want a reliable income stream. Dividend stocks can be ideal for retirees or other income investors because they regularly provide cash.
Investors have two choices for dividend-paying stocks: high-yielding dividend stocks with higher risk or more reliable dividend-paying stocks that constantly increase payouts. Owl Rock Capital Corporation (NYSE: ORCC), Morgan stanley (NYSE: MS), and Travelers (NYSE: TRV) are all dividend paying stocks that range from riskier high yielding stocks to reliable dividend payers.
1. Owl Rock Capital Corporation
Owl Rock Capital offers a stellar 8.5% return, but there are a few things investors need to know about this high-yielding stock. Owl Rock Capital provides loans to middle market businesses and is known as the Business Development Corporation (BDC). A BDC is simply a business that grants loans or purchases shares in private companies in the United States. These companies can help finance businesses that banks may consider too risky.
BDCs have tax rules similar to those of real estate investment trusts (REITs), requiring them to pay 90% of their income in the form of dividends. For this reason, BDCs offer higher dividend yields, but can be riskier investments.
Owl Rock Capital provides loans to mid-market companies or companies with earnings before interest, taxes, depreciation and amortization (EBITDA) of $ 10 million and $ 250 million and annual turnover of 50 to 2 , $ 5 billion. The company believes this space is underserved as large institutional investors are subject to tighter liquidity requirements. As a result, these large institutions lend to large companies, leaving a funding hole for small businesses.
This focus on mid-market companies has paid off, with Owl Rock Capital recording investment income of $ 740 million, up 27.1% from 2020 and 43.4% from 2019. Another key metric for BDCs, called net asset value per share (NAV), came in at $ 14.95, up nearly 2% from the same quarter last year. Growing net asset value is one way of knowing if you’re investing in a strong management team that creates long-term value. While the company’s net asset value declined in 2020 due to low interest rates amid the pandemic, it has moved in the right direction over the past year.
Owl Rock Capital’s high yield is attractive. Nonetheless, investors should be aware of the potential default risks if the economy as a whole were to struggle. As the company invests in mid-market companies, these could be the first to feel the pain of an economic downturn.
Investors should also keep an eye out for rising interest rates, which could affect the repayments of these loans by the companies in its portfolio. Rising rates could also make the stock less attractive if its dividend yield does not rise in line with interest rates. However, given the current strength of the economic recovery and loan markets, Owl Rock Capital appears to be a solid, high yield dividend stock that is worth the risk.
2. Morgan Stanley
Morgan Stanley is another solid dividend paying stock, returning investors nearly 2.7%. This dividend had doubled when its quarterly dividend was announced in June, testifying to the company’s solid financial position.
Morgan Stanley is best known for its investment banking services, which have been excellent this year. In the first nine months of 2021, its investment banking revenue grew 61%, thanks to a solid backdrop of M&A (M&A) and initial public offering (IPO) activity.
Although its investment bank has performed well, what excites me most about the company is how it can thrive in various market conditions. Last year, the company focused on diversifying its revenue streams by acquiring E * Trade and Eaton Vance. By adding the E * Trade platform, Morgan Stanley has added a stream of commission and fee income that can work well with increased market volatility, which tends to increase trading.
The addition of Eaton Vance has boosted the company’s asset management segment, providing it with a steady stream of asset management fees to stabilize its revenue. Over nine months this year, the company’s fees and expenses increased 20%, while its asset management income increased 41% from a year ago.
A key indicator to watch for dividend-paying stocks is the payout ratio. This ratio can give you an idea of ââthe sustainability of a dividend. Usually you want to see a business with a payout rate of 50% or less. Morgan Stanley’s payout ratio is around 15%, giving investors confidence that the company can continue to maintain and increase its dividend. With its diverse business model, Morgan Stanley is well positioned to succeed and deserves a place in any dividend investor’s portfolio.
Travelers is a solid dividend paying stock that pays 2.2% and is committed to increasing dividends – which it has done for 17 consecutive years. Travelers is a property and casualty insurance company that offers several coverage options, including auto insurance, workers’ compensation, and property coverage for individuals, businesses and governments. According to S&P Global Market Intelligence, Travelers was the top commercial insurer in the United States in 2020, and it is the only commercial insurer with a top five position in five major product lines, showing its product line.
This year’s growth has been solid for travelers and can be attributed in part to the context for insurers. Insurance companies have recorded larger claims due to the increase in disaster losses caused by extreme weather and other events in recent years. As a result, insurers must respond by increasing premiums, thereby creating an environment conducive to premium growth. Travelers saw their premiums increase by 5.9% in the first nine months of 2021 compared to last year. In the third quarter, its in-force auto and home insurance coverage hit a record high.
Along with strong revenue growth, you want insurers to maintain good profitability on the policies they write. One measure used by insurance companies is the combined ratio, where a ratio of less than 100% indicates that the company is writing profitable policies. Travelers posted a combined ratio of 97% in the first nine months of this year, and in the past 15 years, Travelers has only seen its combined ratio cross 100% once in 2011.
Travelers’ consistency in profitable underwriting is one of the main reasons the company has increased its dividend payouts for 17 consecutive years. That, along with its 24% payout ratio, puts Travelers in a position to continue paying and increasing its dividend payouts, making it another stellar dividend stock for income investors.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.