4 Investments That Will Earn You Higher Yields Today - Dylan Jovine

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4 Investments That Will Earn You Higher Yields Today

I was at my local supermarket last Tuesday. I was buying peanut butter. Crunchy peanut butter, to be exact. I’ve been on a kick for the better part of three years. Skippy has me in its grasp.

As I went to pay for my habit, I spotted a neighbor of mine who I’ll call Karen working the register. Karen is a retiree in her mid-60’s. She moved to Florida ten years ago, after a successful career as a headhunter. Always dignified yet warm, she’s the type of person that makes you smile even when you don’t want to.

We got to talking. Turns out that Karen did what she was told her whole life. She worked hard, saved money and invested wisely. Yet with interest rates on the 30-year bond at 2.89%, she just can’t earn enough yield to live in. I’m sure at least some folks reading this can relate to that.

So, I started thinking about her problem. I wondered what I could do to help her, and folks like her. I decided what I could do is spend the rest of May researching where investors could find the best yields. I hope it helps.

Most investors looking for higher income look to municipal bonds, corporate bonds, utility stocks and dividend stocks. But I thought it best to ignore what most investors do. Average strategies produce average returns. To achieve above-average returns, we have to go where most people don’t.

To begin our journey, I wanted to focus on Business Development Companies (BDCs).  

BDCs are specialty-finance companies that typically make loans to private businesses in the early stages of development or expansion. Companies such as Facebook, Sling Media and Trulia have used BDCs to fund their expansion.

BDCs make money from the interest payments on the loans they make, as well as consulting fees for providing advice to the small businesses they fund. They become like banking clients. Best of all they aren’t taxed at the corporate level as long as they pay out to shareholders 90% of their taxable annual net income each year.

Here are 4 BDCs worth taking a look at:

Apollo Investment Corp (SYM: AINV) – 11.37% Yield
Apollo is associated with private equity mega-shop Apollo Global Management. It seems the relationship with the parent allows Apollo to get access to great deals that pay well. Best part: More than half of Apollo’s portfolio is in “first lean debt” meaning they are first in line when it’s time to pay the bills.

 Ares Capital Corp (SYM: ARCC) 8.81% Yield
Ares Capital is one of the largest BDCs on Wall Street worth $7.5 billion as of this writing. Their size allows them to source deals themselves, much like an independent investment bank.

Saratoga Investment Corp (SYM: SAR) 8.2% Yield
Saratoga takes a different approach than most. Instead of focusing mostly on debt, they focus on buyouts and acquisition financings. In short, they act much like a buyout firm that focuses on distressed assets (“vulture investing”).

 Main Street Capital (SYM: MAIN): 5.86% Yield  
Arguably the highest quality and safest BDC, Main Street is one of the oldest BDCs in America and has paid uninterrupted dividends for twelve years while raising its payout for either consecutive years. That gives it the best dividend track record in the industry.

“The Buck Stops Here”

Dylan Jovine
Behind the Markets

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