There are many ways to generate passive income. One of the best ways to supplement growth in a portfolio is to look for dividend stocks.
But when it comes to dividend income, did you know that some opportunities can be more reliable than others?
Let’s break down five dividend-paying companies and evaluate why holding each of these stocks over a long-term horizon can lead to massive gains for your portfolio.
1. Hercule Capital
Capital Hercules (NYSE:HTGC) is a business development company (BDC). BDCs are a reliable source of dividend income because these companies are required to pay out at least 90% of their income. taxable income to investors each year.
While there are many types of BDCs, Hercules primarily focuses on high-yield loans to start-ups in the technology, life sciences and renewable energy sectors. Although start-ups can be risky, Hercules has demonstrated that it uses strong due diligence processes before making an investment. Over the years, the company has worked with notable companies including Impossible Foods, Enphase EnergyAnd Lyft.
The company’s steady increase in net interest income undermines Hercules’ strong performance and proven ability to reward shareholders.
Over the past 10 years, Hercules stock has delivered a total return of 275%. Not only does this highlight the importance of dividend reinvestment, but it also highlights that Hercules has been a lucrative investment over the long term.
With its juicy dividend yield of 10.4%, now could be a great opportunity to acquire Hercules shares.
2. Ares Capital
Another important BDC is Ares Capital (NASDAQ:ARCC). Unlike Hercules, Ares does not typically work with high-profile technology companies that have raised money from venture capital firms.
Rather, many of Ares’ portfolio companies are lower middle market companies that are overlooked by investment banks or private equity investors.
Additionally, while Hercules specializes in basic debt instruments such as term loans or revolvers (think corporate line of credit), Ares offers more sophisticated products including leveraged buyouts ( LBO).
With a price-to-book (P/B) ratio of just 1.1, Ares stock is trading essentially in line with its 10-year average. Since the company’s total return outperformed the S&P500 Over the past three and five year periods, I think it’s a great time to buy Ares stock at a yield of 9.3% and prepare to hold it for the long term.
3. Capital of rhythm
Real estate investment trusts (REITs) are another great source of dividend income.
Capital of rhythm (NYSE:RITM) is a REIT specializing in financial services, including loan origination, as well as commercial real estate and single-family home rentals.
One downside investors may see with Rithm is the company’s exposure to broader themes in real estate. Indeed, persistent inflation and high borrowing costs have affected consumers,…
