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Most investors think to look in the obvious places for dividends: large-cap stocks and REITs. However, there are some great dividend yields in stocks that often are left out of typical screens. There’s been increased interest in these other investments as the hunt for yield has expanded in recent years, thanks to the cratering in bond yields.
These are somewhat unusual or surprising choices. Each dividend stock has something unusual about it, but what isn’t unusual about these stocks is their dividends are consistent and generous.
Martin Mainstream Partners L.P. (NASDAQ:MMLP) is a pipeline limited partnership. MLPs were created by Congress years ago to entice investors to put money into energy infrastructure, and the result is an investment with high yields. Energy is a great investment, but so is energy infrastructure.
Energy is a necessity, but moving it is just as important, so wherever you find an energy investment, an infrastructure play will be close behind.
Martin Mainstream Partners gathers, stores and transports natural gas for independent oil and gas producers. MMLP landed a big contract to help clean up the Deepwater Horizon debacle, and it also just closed a deal to buy a controlling interest in another gas storage company.
The company has constantly increasing dividends, and MMLP today pays fantastic 7.9% yield.
Another unusual play is exchange-traded debt. ETDs are a lot like preferred stock, in that they trade in a very narrow range, offer dividend yields that are about the same, but have the advantage of being ahead of preferred stock in terms of recovering your investment in the event of a bankruptcy.
ETDs distribute income quarterly, but these distributions are classified as interest, and therefore are taxed as ordinary income. That’s the price you pay for that additional security, because your normal dividend stock is often taxed at the “qualified dividend rate” of 20%.
Therefore, the best place to hold an ETD is in a retirement account, where those taxes are deferred.
There are many attractive ETDs out there, but I like General Electric Capital 4.875% Notes (NYSE:GEH). Itis a more conservative choice, as it trades the debt of GE Capital, the venerable commercial and consume finance arm of the famous company. GE Capital is in very solid shape financially, so it is no surprise the ETD is rated AA+ by S&P, thereby saying it has “very strong capacity to meet financial commitments”.
I am mystified as to why a quality debt issuance like this trades below the $25 par value (it trades at $24.32). There are few issuances more solid that GE Capital as far as debt is concerned.
So not only do you get a very safe investment yielding just about 5%, but there is room for capital gains here as well – about 3% alone just to get to par.
Most people don’t know that shipping operations tend to pay out big dividends. In this case, Knightsbridge Tankers Limited (NASDAQ:VLCCF) pays 7.1%. The company engages in the seaborne transportation of crude oil and dry bulk cargoes worldwide. Knightsbridge Tankers’ customers include oil companies, tanker companies, dry bulk companies, petroleum products traders, government agencies and other entities.
This kind of operation has a high barrier to entry and requires a lot of specialized personnel. As a result, while it is subject to supply and demand, this kind of operation can charge a lot of money for its services.
The result is net margins of almost 33%, and a stock that has doubled in the past two years.
Lawrence Meyers does not own shares in any security mentioned.
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