Where to Find Legitimate Double-Digit Dividends Right Now
By Dr. Steve Sjuggerud
February 29, 2008
Legitimate double-digit dividends are extremely hard to come by...
Normally when you see double-digit dividends yields, you're either looking at a risky business that has drastically fallen in share price, or a business that's about to cut its dividend. But that isn't necessarily so with business development companies (or "BDCs") right now...
Whenever BDCs start to pay out double-digit dividends, it's time to buy 'em. History shows that, not only can you earn the double-digit dividends, but as fear subsides, you can pocket big capital gains, too...
It's time to buy BDCs now...
The chart below tells the story... The last two times dividends on BDCs yielded double digits, you'd have made great returns on the stock in addition to the huge dividends. Take a look:
When the Dividend Goes Above 10%, BUY! |
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Before I get any further, you're probably wondering what BDCs are...
Back in 1980, Congress created business development companies. The idea was for BDCs to help small businesses get access to money and expertise. In order to entice investors to organize as a BDC, Congress made the business structure very attractive... BDCs pay no taxes, as long as they pay out the majority of their earnings to shareholders and remain in the business of helping small companies.
So quite often, these companies lend money out to small businesses at a high interest rate. In the latest issue of Sjuggerud Confidential, I recommended a company that charges 11.6% in interest. Since it pays out what it earns to us as shareholders, we're earning a double-digit dividend right now.
In fact, the dividend is higher than the interest the company earns. That's because we bought when the stock was trading at a discount to its net asset value. This is a key factor in when to buy as well...
If you can buy BDCs at close to net asset value (the value of a company's cash and investments), you can make a heck of a lot of money also. It just so happens that BDCs are as cheap as they've ever been in terms of net asset value. For the first time in history, you're literally paying no premium at all. Take a look:
BDCs – Cheaper Than Ever |
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BDCs were hit hard as the subprime crisis and the debt crisis double-whammy kicked in. But this is a bit ridiculous... several of my favorite BDCs have nothing to do with real estate, credit cards, big leverage, or other consumer debts.
It is my guess that BDCs will easily trade back up to 1.5 times net asset value... for a 50% gain. Even better, their net asset values will increase, increasing your profits. And lastly, we can't forget about the double-digit dividends...
I think we're on track for just about triple-digit total returns in my recommended BDCs over the next 24 months.
This is really something you should check out... legitimate double-digit dividends are hard to come by. In the case of the BDCs, they're here now, and worth investigating. The two largest BDCs are Allied Capital (ALD) and American Capital (ACAS), but there are many others.
Learn about 'em and consider investing, while they're still attractive.
Good investing,
Steve
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