Lately, many stocks aren’t offering great dividends. The S&P 500’s yield is hovering around 1%, nearly the lowest it’s been in decades. Investors looking for better yields often find themselves needing to take on more risk, which could mean a higher likelihood of dividend cuts in the future.
That said, there are some relatively low-risk investment opportunities with higher yields if you’re willing to dig a little. We’ll explore three companies that boast yields exceeding 8%. Such returns could help investors transform $1,000 into a meaningful source of passive income that lasts over time.
Remember Nvidia’s signal in 2009? That same unusual indicator is lighting up again. A “double down” signal caught attention for Nvidia back in 2009, and now, a company that’s considerably smaller than Nvidia is signaling similar conviction.
Starwood Property Trust
Starwood Property Trust (NYSE: STWD) functions as a real estate investment trust (REIT). By law, REITs must distribute at least 90% of their taxable income to investors, leading to higher yields. Currently, Starwood’s stock offers around 11.5%, meaning a $1,000 investment would generate about $115 in annual dividends.
Since its IPO in 2010, Starwood has never cut its dividend and has kept the same payout since 2014. A major factor in this stability is its diverse investment strategy. The REIT invests in various assets: 52% in commercial mortgage loans, 10% in infrastructure loans, 8% in residential mortgages, and 10% in other assets. Additionally, it owns real estate that accounts for 20% of its portfolio.
Starwood recently expanded its footprint by acquiring Fundamental Income Properties for $2.2 billion. This acquisition adds a portfolio of expandable real estate secured by long leases (with an average lease term of 17 years and annual rental growth of about 2.2%). This new platform is expected to bolster Starwood’s revenue and aid in sustaining high dividends.
Main Street Capital
Main Street Capital (NYSE: MAIN) operates as a business development company (BDC). Like REITs, BDCs are also subject to the requirement of distributing at least 90% of taxable income, leading to substantial yields.
Main Street Capital achieves this by issuing two dividends monthly, set at sustainable levels. Notably, it has never decreased its monthly payouts since its 2007 IPO, growing them by 160% over the years, including increases over the past 12 quarters. The company also regularly throws in additional quarterly dividends to meet payout requirements, having done so for 19 consecutive years. Currently, these combined dividend payments yield over 8.5% based on recent stock prices.
Western Midstream Partners
Western Midstream Partners (NYSE: WES) operates as a master limited partnership (MLP). These entities usually provide higher dividend yields due to their structure and often more favorable tax implications.
Western Midstream manages oil and gas pipelines, processing facilities, and various energy infrastructure. Such assets typically yield stable cash flow driven by long-term contracts, supporting a distribution yield of over 8.5%.
The company has increased its dividend by 184% since 2021. This growth follows a reset in 2020, which intended to strengthen its financial position. Western Midstream is looking for low to moderate annual distribution growth, fueled by both organic expansion and acquisitions. The firm plans to invest between $850 million and $1 billion this year to enhance its operations, which includes developing the Pathfinder pipeline and the North Loving II gas processing facility. Moreover, it has agreed to buy Brazos Delaware for $1.6 billion, aimed at bolstering its midstream presence.
Low-Risk, High-Yield Investments
Typically, REITs, BDCs, and MLPs tend to provide higher dividends. This makes them appealing for investors searching for a steady income. With a proven track record of consistent dividends, Starwood Properties, Main Street Capital, and Western Midstream Partners present sound options for anyone keen on converting $1,000 into a reliable passive income stream.
Should You Buy Main Street Capital Stock Now?
Before considering an investment in Main Street Capital, it might be wise to take into account the following:
Some analysts suggest there are better investment options available right now that might provide longer-term growth potential, which could lead to impressive returns in the coming years.
