In order to achieve financial independence, many individuals seek to build a growing income stream that provides them with flexibility and the ability to enjoy the finer things in life. This can include upgrading their car, indulging in fine dining experiences, and treating their family to memorable vacations. Generating additional cash flow not only offers a pathway to leave traditional employment, but also grants peace of mind by allowing individuals to own a stake in businesses that distribute consistent dividends.
Warren Buffett once said that if you can’t find a way to make money while you sleep, you will work forever. With this in mind, let’s explore four businesses that not only generate durable high yields, but also have the potential to be attractive investments for various types of investors.
Pick #1: EPD – 7.6% Yield
Enterprise Products Partners (EPD) is widely regarded as the leading midstream company, boasting an impressive track record of 25 years of distribution increases. Unlike many of its peers, EPD has eliminated its incentive distribution rights and no longer relies on issuing equity for growth. This positions the company to self-fund its expansion plans, as evidenced by the $1.7 billion in distributable cash flow generated in the second quarter. EPD maintains a strong balance sheet, with a net debt to EBITDA ratio of 3.0x, and trades at an attractive valuation compared to its industry peers.
Pick #2: CSWC – 10.3% Yield
Capital Southwest (CSWC), although smaller in size compared to its counterpart Main Street Capital, offers consistent returns and a history of rewarding shareholders. The company focuses on investing in the lower middle market, targeting companies with annual EBITDA between $3-$20 million. CSWC’s portfolio is backed by primarily first lien investments, and it benefits from low operating costs. With its strong balance sheet and diversified portfolio, CSWC presents an appealing opportunity for investors seeking stable income.
Pick #3: ARCC – 10% Yield
Ares Capital (ARCC), the largest business development company (BDC) by asset size, is externally managed by Ares Management, a renowned alternative asset manager. ARCC has a proven track record of consistently rewarding shareholders, with a focus on the upper middle market. The company’s well-diversified portfolio and prudent portfolio management have resulted in strong performance. With its solid balance sheet and attractive dividend yield, ARCC presents an attractive investment opportunity.
Pick #4: SRC – 7% Yield
Spirit Realty Capital (SRC) is a self-managed net lease real estate investment trust (REIT). With an asset base comparable to market leader Realty Income, SRC stands out due to its wide asset base and strong fundamentals. SRC’s portfolio is diversified across various industries and boasts a strong occupancy rate. The company is well-positioned to take advantage of the growing industrial sector, providing investors with an opportunity to benefit from its expansion efforts and secure a reliable income stream.
For income-seeking investors, EPD, CSWC, ARCC, and SRC offer diverse and essential business models that capture income from different sectors of the economy. With an average yield of 8.7%, these companies have a track record of delivering well-covered dividends. Investors looking to enhance their income streams should carefully consider these four attractive options.