This article today is about six strong dividend stocks to buy for high inflation. They have higher yields than the current inflation rate, which as of June 10, was reported to be 8.6% in the last 12 months.
Most of these stocks are REITs (real estate investment trusts) or MLPs (Master Limited Partnerships) which are required to pay out 90% of their net income in order to keep their non-taxable status. MLPs tend to be focused on the oil and gas industry, although they are not required to be there.
REITs are focused on the real estate industry — 75% of their income must come from related real estate activities, including rents, mortgage interest, or gains from the sale of the property. Just like MLPs, 90% of their income must be distributed. REITs tend to use leverage to enhance their income.
These two industries tend to be focused on producing cash flow that can be distributed to investors. That makes them ideally suited to produce strong dividends to battle inflation.
In addition, some of these stocks are business development companies (BDCs), which are also regulated investment companies. They also must pay out 90% of their income. However, BDCs must invest at least 70% of their assets in businesses worth $250 million or less.
Many BDCs have high dividend yields because they invest in debt instruments from private companies on a leveraged basis. One really good source of information we use for these stocks is BDCinvestor.com.
Let’s dive in and look at these stocks.
| CCAP | Crescent Capital | $15.28 |
| CGBD | Carlyle Secured Lending | $12.61 |
| FSK | FS KKR Capital Corp | $19.16 |
| OHI | Omega Healthcare Investors | $29.10 |
| OPI | Office Properties Income Trust | $20 |
| GLP | Global Partners LP | $23.88 |
Dividend Stocks To Buy: Crescent Capital (CCAP)
Dividend Yield: 10.7%
Crescent Capital (NASDAQ:CCAP) is a $489 million market cap BDC that invests in the debt of middle-market companies in the U.S. Its present dividend rate is $1.64 annually, based on a “regular dividend” of 41 cents quarterly rate. That alone gives the stock a stated yield of 10.7% at Wednesday’s close of $15.28.
However, the company has also started paying a 5-cent special dividend for the past three quarters. That works out to 46 cents in quarterly dividends in total, or $1.84 annually, if it continues.
Therefore, its real run rate dividend yield now is 12.04% (i.e., $1.84/$15.28) — again, assuming that the extra special 5 cents quarterly dividend continues.
For example, the company declared four of these special dividends on Nov. 10, 2021. CCAP has already paid three of them. The fourth will be paid on July 15, for shareholders of record as of June 29. That means it is too late to get this fourth special dividend. It is not yet clear if the company will renew a new round of special cash dividends.
I would not necessarily count on the extra 5 cents continuing if the U.S. is in a deep recession. Many companies will begin defaulting on their debt obligations. That will make it harder for Cresent Capital to keep up the extra payments. So investors should probably just count on the $1.64 dividend annually for now — and a 10.7% yield is still significantly higher than inflation.
Another reason to hang on to CCAP stock is that its net asset value (NAV), as of March 31 was $21.18. So, at a price of $15.28, the stock trades for just 72% of its NAV. That means a lot of bad news, in terms of discounting its loan assets, is already in the stock price. That makes it a very conservative investment.
Carlyle Secured Lending (CGBD)
Yield: 12.7%
Just like Crescent Capital above Carlyle Secured Lending (NASDAQ:CGBD) is a BDC that pays two types of quarterly dividends. But it calls its larger dividend a “base” dividend, for 32 cents quarterly. The “supplemental” dividend is 8 cents, bringing the total quarterly dividend to 40 cents, and $1.60 on a run rate. This gives it a total run-rate yield of 12.7% at a price of $12.61 on June 29.
This language is different than a “regular” and “special” dividend like at Crescent. Moreover, Carlyle does not pre-announce four quarters of special dividends like at Crescent. It announces the special dividends each quarter along with the base dividend.
However, the quarterly base and supplemental rates have jumped around a good deal. For example, last year the total quarterly dividends ranged from 40 cents to 46 cents. But starting in 2022, the 32 cents base and 8 cents supplemental dividends became the norm.
I think investors can continue to count on the 32 cents base dividend. But the supplemental amounts could be lower each quarter. Therefore the total yield now at a price of $12.61 is $1.60/$12.61, or 12.7%. But it could be as low as 10.15% (i.e., (32 cents x 4) / $12.61).
However, for the time being, I suspect investors can count on the full 40-cent total quarterly dividends. That 12.7% yield makes it one of the strong dividend stocks to buy to beat inflation.
Given the uncertainty due to the extra smaller dividends, CGBD trades at a discount to NAV. As of March 31, its NAV was $17.11. So the discount ($12.61/$17.11) is 73.7%. That is another major reason to buy CGBD stock.
FS KKR Capital Corp (FSK)
Dividend Yield: 14.2%
Like other two other above BDCs above that are managed by private equity companies, FS KKR Capital Corp (NYSE:FSK) invests in middle-market company loans. However, it pays a total quarterly dividend with no special or supplemental features like the other two BDCs. However, FSK stock’s quarterly dividend announcements bounce around depending on that quarter’s profits.
For example, last quarter FSK paid a 68-cent dividend, up from 63 cents in the quarter before that and 62 cents earlier. So, at Wednesday’s closing price of $19.16, the stock has a dividend yield of 14.2%.
Moreover, just like the other two BDCs, FSK is well below its quarterly NAV price. Last quarter its NAV was $27.33, up from $27.17 at the end of Dec. 31. that puts it at just 70.1% of its NAV.
This makes it one of the cheapest and highest-yielding strong dividend stocks to buy to beat inflation.
Omega Healthcare Investors (OHI)
Dividend Yield: 9.2%
Omega Healthcare Investors (NYSE:OHI) is a REIT run by the large Omega private equity firm that is focused on investing in facilities run by skilled nursing and assisted living operators. For the past several years it has paid a quarterly dividend of 67 cents, or $2.68 annually. At Wednesday’s closing price of $29.10, this gives the stock a yield of 9.2%.
That gives investors a good deal of stability compared to the high-yield BDCs earlier mentioned on this list. They have variable dividends each quarter and investors can’t count on a regular level. Sometimes more stability gives the stock a higher valuation.
For example, its tangible book value is $13.71. So the stock’s price-to TBV is over 2.1 times. That means the market is willing to value this stock as an operating company rather than a mutual fund or regulated investment company like BDCs.
This is important since the company is actively buying back its shares. That lowers the shares outstanding and increases the ability of the company to raise its dividends on a per-share basis in the future.
Moreover, its yield is well over the 8.6% CPI inflation rate, making it one of the strong dividend stocks to buy to cover inflation.
Office Properties Income Trust (OPI)
Dividend Yield: 11%
This company is also an REIT that invests in office properties and leases them to high-quality organizations like government entities. Office Properties Income Trust (NASDAQ:OPI) pays a quarterly dividend of 55 cents each quarter and has done so for the past several years.
So at Wednesday’s closing price of $20, its annual run-rate dividend of $2.20 gives it an annual yield of 11%. Moreover, its tangible book value per share is $30.09. That means its price-to-TBV per share is 66.5%.
This makes it a typical value stock, trading at two-thirds of book value with a high dividend yield. It is one of the best dividend stocks to buy to beat inflation.
Global Partners LP (GLP)
Dividend Yield: 10%
Global Partners LP (NYSE:GLP) is an MLP that invests in gasoline-producing facilities. It engages in the purchasing, selling, gathering, blending, storing, and logistics of transporting gasoline and gasoline blends. It also produces and sells distillates, residual oil, renewable fuels, crude oil, and propane to wholesalers, retailers, and commercial customers in the New England states, Mid-Atlantic region and New York.
This is a timely way to fight inflation — buy companies that are clearly benefiting from higher oil and gas prices to consumers. Moreover, the stock pays a quarterly dividend of 60 cents (recently raised by 1 cent in the last two quarters). That puts its annual run rate at $2.40 per share. So, at Wednesday’s closing price of $23.88, the annual yield is 10%.
That clearly beats the present 8.6% CPI inflation rate. Moreover, its forward price-to-earnings (P/E) multiple is low at just 7x, according to Seeking Alpha. Even if earnings fall next year with a lower oil and gas price, this still makes the stock cheap.
However, that could lower the quarterly dividend, so there are some risks on the downside here.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.