The Private Stock Market Paying Yields Up To 12.5%
By Christian Hudspeth
Let me start today's essay with a prediction.
I predict that over the next few years, many of those who invest in traditional stocks will struggle through an era I call "the death of high dividend yields."
Don't get me wrong though, as I'll show you today, there are ways you can still earn annual dividend yields of 8% or even 10%.
But you have to be willing to look off the beaten path.
The Private Stock Market Where Hillary Made $15.4 Million
There's a hidden stock market where famous politicians make millions. George H. W. Bush, Al Gore, and the Clintons have all cashed in. Normally, only the wealthiest 6% of investors are granted access, but we've found a loophole that lets everyday investors in on the action -- and snag yields up to 12%. Details here.
I probably don't have to remind you that it's difficult to find stocks with even moderate dividend yields in today's market.
As our resident income expert, Nathan Slaughter, noted in a recent issue of Dividend Opportunities:
||"High-quality stocks with yields [of 4% or higher] are extremely rare [right now]...
Here's how the distribution of yields among S&P 500 stocks currently looks:
||Number Of Stocks
||% Of Index
|4% to 6%
|3% to 4%
|2% to 3%
|Less than 2%
As you can see, dividends of 7% to 8% don't exactly grow on trees. In fact, there is only one in the entire S&P 500... The other 499 fall short..."
To date, there are just 13 stocks in the entire S&P 500 that carry a 5% dividend yield or higher, and not a single company that pays above 10%.
Stocks with dividend yields of around 3% are easier to find, but even with a $100,000 investment, that would only generate around $250 per month in dividend income. That's hardly enough to cover half of the monthly grocery bill, let alone someone's living expenses.
So what is an income investor to do?
As many long-time Dividend Opportunities may already be aware of, Nathan Slaughter is known for his research on how America's wealthiest invest their money.
In his brand-new research, Nathan has found an "ultra-high yield" investment vehicle where dividend yields above 8% are the norm, and yields above 12% aren't uncommon.
The inspiration came from a high-yield, private stock market that the wealthy and powerful have been using for decades. As Nathan mentions in his research:
||"According to Bloomberg, Hillary and Bill Clinton made an estimated $15.4 million between 2003 and 2007 consulting for this private market reserved exclusively for the rich and well connected...
The Clintons aren't the only famous politicians to cash in on this hidden investment market. Former President George H. W. Bush did it. So did his son, former Florida governor Jeb Bush...
Former Presidential candidate and Massachusetts Governor Mitt Romney is another perfect example of the kind of staggering wealth these private markets can generate.
In 1984, Romney teamed up with a group of friends and proceeded to make 88% a year on his money until 1999 -- when he quit to run the Salt Lake City Winter Olympics. Conservatively assuming that he added $200 million to his net worth over that time, that comes to $6,400 an hour for 15 years."
This private market Nathan is talking about holds a class of investment once exclusive to wealthy investors -- namely private equity and venture capital firms.
He first talked about how difficult it was to crack this private market in the June issue of his premium newsletter, High-Yield Investing.
||"So how do ordinary investors participate?
Well, for many years we couldn't... not without becoming the next Walden Schmidt and starting a new company.
Investing in a fund managed by Sequoia Capital or another venture capital outfit is restricted. Only accredited investors with annual incomes of more than $200,000 or a net worth over $1 million are allowed in.
In other words, this [is mostly] a secret club with closed doors."
That is, until Congress passed legislation that opened the doors for individual investors to enter this secret market through a little-known loophole.
"Walk through [the door into this market], and you'll find what just might be the last hidden bastion of 10%-plus dividend yields," Nathan says.
The legislative "loophole" we're referring to is what spawned the high-yield investment vehicles known as business development companies (BDCs).
And the best part about BDCs is, anyone can invest in them.
Nathan explains how BDCs work in his latest research:
||"Like so many good ideas, it's actually very simple. BDCs loan money to small, typically fast-growing private companies. In return, they get back high interest and often an equity stake.
So if a company rakes in huge profits or gets acquired by a larger firm, the BDC gets a piece of the action. And even if the company stays independent, the BDC gets such high interest on its loans that BDC investors can do very well.
Some BDCs invest in a wide range of private businesses, from restaurants to high-tech startups. Other BDCs specialize. Medallion Financial Corp (Nasdaq: TAXI), for example, loans money to taxicab companies... and pays its investors an 8.1% dividend yield..."
As Nathan mentions, because BDCs are able to lend to small or mid-sized businesses at exorbitantly high interest rates -- with some firms like Blackrock Kelso charging clients interest rates up to 20% -- they collect massive amounts of income.
And here's the kicker. Because Federal law requires BDCs to pay out 90% of their income to shareholders in the form of dividends to avoid income taxes, these firms are known to pay some of the highest dividend yields on Earth.
To give you an idea of the kinds of yields these investments throw off, here's a sneak peek of a few publicly-traded BDCs featured in Nathan's latest research:
Yields Of Select BDCs
|KCAP Financial (Nasdaq: KCAP)
|MCG Capital Corp. (Nasdaq: MCGC)
|Pennant Park Investment (Nasdaq: PNNT)
And there's plenty more where those come from. As Nathan adds:
||"The average BDC yields nearly 8% -- about 4 times higher than the S&P. And the most attractive BDCs are delivering yields of up to 12.5% right now."
Now, BDCs won't make you rich overnight. And like any investment, these firms carry their own set of risks.
But if you're looking to collect a potential 12% annual income stream and some solid growth as icing on the cake, you should seriously consider these ultra-high yield investments -- especially in a market where high yields from traditional stocks are becoming increasingly hard to come by.
There's a lot more to say about the benefits of BDCs in today's market. That's why Nathan has put together a special research report called "Everything You Need To Know About BDCs." In it, you'll learn the 7 rules that will tell you exactly which BDCs to invest in, and which ones to avoid.
The report also reveals the names and ticker symbols of the 10 best-performing BDCs, as well as a description of every single publicly-traded BDC available on the market, including their dividend yields. To learn more about BDCs and how to get this report for free, be sure to watch this free presentation.