Warren Buffett remains one of the world’s most prominent investors, renowned for his long-term buy-and-hold strategies and extensive portfolio of public and private holdings. With interest rates poised to decline, it makes sense to consider adding Warren Buffett’s dividend-paying stocks, which are expected to rally as bond yields fall. However, the dividend stocks that we were particularly interested in seeing are the ones that Mr. Buffett owns through his “Secret Portfolio”. These are the holdings at New England Asset Management (NEAM), which is owned indirectly by Berkshire Hathaway.
We have been aware of Warren Buffett’s “Secret Portfolio” for some time, but it took some digging to discover NEAM’s connection to Berkshire Hathaway (NYSE: BRK-B | BRK-B Price Prediction). Warren Buffett owns New England Asset Management (NEAM), but indirectly. New England Asset Management Inc. (NEAM) is a wholly owned subsidiary of General Re, which in turn is a subsidiary of Berkshire Hathaway. Since Warren Buffett is the CEO and largest shareholder, he effectively owns NEAM through this corporate structure. The securities NEAM holds in its investment portfolio are ultimately owned by Berkshire Hathaway. This arrangement has created what some financial media refer to as “Buffett’s hidden $5.9 billion portfolio” or his “secret portfolio,” since NEAM operates as an investment management subsidiary with its own holdings that are separate from Berkshire’s main stock portfolio but still ultimately owned by the investment Goliath.
Three of the stocks in the “Secret Portfolio” are among our favorite Ultra-High-Yield stocks, which we have recommended for years. All makes sense for growth and income investors looking to generate big passive income streams.
Why do we cover Ultra-High-Yield dividend stocks?
While not suited for everybody, those trying to build strong passive income streams can do exceptionally well with some of these top companies in their portfolios. Paired with more conservative blue-chip dividend giants, investors can employ a barbell approach to generate substantial passive income streams.
Ares Capital
The company specializes in providing financing solutions for the middle market and appears poised to reach new highs. This company is a high-yielding Business Development Company (BDC). Ares Capital Corporation (NASDAQ: ARCC) specializes in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle-market companies.
It also makes growth capital and general refinancing. It prefers to invest in companies engaged in basic and growth manufacturing, business services, consumer products, healthcare products and services, and information technology sectors.
The fund will also consider investments in industries such as:
- Restaurants
- Retail
- Oil and gas
- Technology sectors
It focuses on investments in the Northeast, Mid-Atlantic, Southeast, and Southwest regions from its New York office, the Midwest region from the Chicago office, and the Western region from the Los Angeles office.
The fund typically invests between $20 million and $200 million, with a maximum investment of $400 million, in companies with an EBITDA between $10 million and $250 million per year. It makes debt investments between $10 million and $100 million
The fund invests through:
- Revolvers
- First-lien loans
- Warrants
- Unitranche structures
- Second-lien loans
- Mezzanine debt
- Private high yield
- Junior Capital
- Subordinated debt
- Non-control preferred and common equity.
The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically acquires stressed and discounted debt positions.
Ares Capital Corporation prefers to be an agent and lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies. NEAM owns 225 900 shares.
Blackrock TCP Capital Corp
Run by one of the most prominent money managers in the world, this company pays a gigantic dividend. Blackrock TCP Capital Corp. (NASDAQ: TCPC) is a business development company specializing in direct equity and debt investments in:
- Middle-market, small businesses
- Debt securities
- Senior secured loans, junior loans, originated loans
- Mezzanine
- Senior debt instruments
- Bonds and secondary-market investments
It typically invests in:
- Communication services
- Public relations services
- Television
- Wireless telecommunication services
- Apparel
- Textile mills
- Restaurants retailing
- Energy, oil, and gas extraction
The company also prefers to invest in:
- Patent owners and Lessors
- Federal and Federally-Sponsored Credit Agencies
- Insurance, hospital, and healthcare centers
- Biotechnology
- Engineering services
- Heavy electrical equipment
- Tax accounting
- Scientific and related consulting services
- Charter freight air transportation
Blackrock TCP Capital also focuses on:
- Information technology consulting
- Application hosting services
- Software diagram and design
- Computer-aided design
- Communication equipment
- Electronics manufacturing equipment
- Computer components
- Chemicals
It seeks to invest in the United States. The fund typically invests between $10 million and $35 million in companies with enterprise values between $100 million and $1500 million, including complex situations. It prefers to make equity investments in companies for an ownership stake. NEAM owns 170,834 shares of the company.
Golub Capital
This is yet another Business Development Company that NEAM owns. With a huge double-digit dividend yield and solid upside potential, this could be a total return home run. Golub Capital BDC, Inc. (NASDAQ: GBDC) is an externally managed, non-diversified closed-end management investment company. The Company’s investment objective is to generate current income and capital appreciation by investing primarily in one-stop and other senior secured loans of United States middle-market companies.
It also selectively invests in second lien and subordinated (a loan that ranks senior only to a borrower’s equity securities and ranks junior to all of such borrower’s other indebtedness in priority of payment) loans of, and warrants and minority equity securities in, United States middle-market companies.
Golub Capital also invests in various sectors, which include:
- Software
- Healthcare providers and services
- Specialty retail
- Automobiles
- Diversified consumer services
- Insurance
- Healthcare technology
- Information technology (IT) services
- Commercial services and supplies
The Company’s investment activities are managed by its investment adviser, GC Advisors LLC. NEAM owns 232,876 shares of the company.
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