Investing

3 Top Stocks to Buy With Dividends Near 10% and Higher

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The old adage “if it sounds too good to be true it probably is” is often very applicable when it comes to investing, especially when you focus on securities with huge yields and distributions. However, for risk-tolerant income investors, many of these companies pay reliable dividends, and if you can stand the potential roller coaster ride, you may have a nice steady stream of hefty income.

With rates having moved considerably higher recently on anticipation of the Federal Reserve raising the benchmark rate next week, we decided to look for super-high-yielding stocks that still look like a solid bet. We found three, and while these are not suitable for conservative growth and income accounts, for aggressive accounts looking for growth and high income, they may be just the ticket.

All three are rated Buy at top Wall Street firms.

CenturyLink

This company offers solid value, has zero foreign sales exposure and has kept its dividend intact. CenturyLink, Inc. (NYSE: CTL) is the nation’s third-largest telephone company and the largest rural exchange provider serving residential, enterprise and wholesale customers. It is the product of the acquisition of Embarq by CenturyTel in 2008, Qwest Communications in 2011 and Level 3 Communications in 2017. Embarq is Sprint’s former wireline unit.

With the Level 3 acquisition doing well and things looking up for the company, many analysts are starting to come around on the stock. Merrill Lynch has been positive on the shares for some time, and the firm expects the company’s strong free-cash-flow generation to support the dividend through 2018 and beyond.

CenturyLink investors receive a gigantic 9.5% dividend. Merrill Lynch rates the stock a Buy with price target of $29, while the Wall Street consensus price objective is $21.28. The stock traded early Thursday at $22.50.

Blackrock TPC Capital

This is a solid business development company (BDC) with shares that have acted well this year. Blackrock TPC Capital Corp. (NASDAQ: TCPC) is an externally managed specialty finance company focused on middle-market lending. The company has elected to be regulated as a BDC under the Investment Company Act of 1940.

The company’s objective is to achieve high total returns through current income and capital appreciation, with an emphasis on principal protection. TPC Capital principally invests in debt of unrated, middle-market companies with enterprise values between $100 million and $1.5 billion.

The Merrill Lynch analysts rate the shares Buy and noted this when the company reported in August:

The company reported second quarter 2018 Core earnings per share of $0.41, slightly above Street expectations of $0.40. Non-accruals rise to 2%; Net asset value/share declines to $14.61. New BlackRock affiliation should benefit both sides of the balance sheet; TCPC management and strategy will not change.

Shareholders are paid a huge 10.10% dividend. Merrill Lynch has a $16.50 price target, and the posted consensus target is higher at $17.22. The shares traded at $14.30 Thursday morning.

Summit Midstream

This company has hit our insider buying screens numerous times over the past two years. Summit Midstream Partners L.P. (NYSE: SMLP) focuses on owning, developing and operating midstream energy infrastructure assets primarily shale formations, in North America. The company provides natural gas gathering, treating and processing services pursuant to primarily long-term and fee-based gathering and processing agreements with customers and counterparties in five unconventional resource basins.

Since going public in 2012, the company has continued increasing its distribution as the result of a number of acquisitions and investments that grew its footprint across most of the major shale plays. The company recently guided 2018 in line with expectations, and it should be another year of smooth growth and consistent distributions.

Investors here are paid a huge 14.33% distribution. The $23 Baird price target is well above the $18.67 consensus target and the recent share price of $16.05.

These three stock picks could turn out to be total return home runs. However, it is important to keep an eye of the divided coverage, because if payouts are cut, it could spell meaningful downside for the shares.

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