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Investors love dividend stocks, especially the ultra-high-yield variety, because they offer a significant income stream and have massive total return potential. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation.
For example, if you buy a stock at $20 that pays a 3% dividend, and it goes up to $22 in a year, your total return is 13%. That is, 10% for the increase in stock price and 3% for the dividends paid.
During the massive rally over the past 18 months, one stock market sector has sorely lagged the rest: small capitalization stocks or small-caps. Small-cap stocks are shares of companies with a market capitalization of around $300 million to $2 billion. They can be appealing investments because of their potential for high growth rates. However, they may also be more volatile and riskier for investors and often are avoided for those reasons. However, after underperforming for so long, many Wall Street strategists feel the group could be poised for a big move higher, as we briefly saw over the last couple of weeks when some big sector rotation came into play.
We decided to screen the sector, looking for small-cap bargains, and found five with ultra-high-yield dividends that look like outstanding ideas for growth and income investors with a higher risk tolerance level. All make sense for those looking to carve out small-cap positions in a portfolio. Dividend lovers should also grab this free report today.
Arbor Realty Trust
Arbor Realty Trust offers nationwide solutions for multifamily finance.
This company trades at a ridiculous 7.8 times estimated 2024 earnings and pays a massive 12.86% dividend. Arbor Realty Trust ( NYSE: ABR ) invests in a diversified portfolio of structured finance assets in the multifamily, single-family rental, and commercial real estate markets in the United States.
The company operates in two segments:
- Structured Business
- Agency Business
Arbor Realty Trust primarily invests in:
- Bridge and mezzanine loans, including junior participating interests in first mortgages
- Preferred and direct equity and real estate-related joint ventures
- Real estate-related notes
- Various mortgage-related securities
The company offers:
- Bridge financing products to borrowers who seek short-term capital to be used in an acquisition of property
- Financing by making preferred equity investments in entities that directly or indirectly own real property
- Mezzanine financing in the form of loans that are subordinate to a conventional first mortgage loan and senior to the borrower's equity in a transaction
- Junior participation financing in the form of a junior participating interest in the senior debt
- Financing products to borrowers seeking conventional, workforce, and affordable single-family housing.
Further, it underwrites, originates, sells, and services multifamily mortgage loans through conduit/commercial mortgage-backed securities programs.
Gladstone Capital
Gladstone Capital partners with management teams, entrepreneurs, and private equity sponsors to provide financing solutions.
Yielding a strong 8.9% dividend paid monthly to investors, this company is a steal at current trading levels. Gladstone Capital Corp. ( NASDAQ: GLAD ) is a business development company specializing in:
- Lower middle market
- Growth capital
- Add-on acquisitions
- Change of Control
- Buy & build strategies
- Debt refinancing
- Debt investments in senior term loans, revolving loans, secured first and second lien term loans, senior subordinated loans, unitranche loans, junior subordinated loans
- Mezzanine loans and equity investments in common stock, preferred stock, limited liability company interests, or warrants
The fund also makes private equity investments in acquisitions, buyouts, recapitalizations, and refinancing existing debts.
It targets small and medium-sized companies in the United States. It is industry agnostic and seeks to invest in companies engaged in:
- Business services
- Light and specialty manufacturing
- Niche industrial products and services
- Specialty consumer products and services
- Energy services
- Transportation and logistics
- Healthcare and education services
- Specialty chemicals
- Media and communications
- Aerospace and defense
Hercules Capital
Hercules Capital is the lender of choice for innovative entrepreneurs and their VC partners.
This highly regarded company across Wall Street pays a giant 10.33% dividend. Hercules Capital Inc. ( NYSE: HTGC ) is the largest non-bank lender to venture capital-backed companies at all stages of development in a broadly diversified variety of technology, life sciences, and sustainable and renewable technology industries.
With two decades of experience in venture debt, Hercules is uniquely positioned to quickly create innovative financing solutions that perfectly fit within a company's existing capital structure and map to its business objectives.
Recognized as the industry leader, Hercules understands the flexibility these types of companies need and has the experience to work closely with them, even through challenging times, to help them reach critical milestones.
Since its inception in December 2003, Hercules has committed more than $18 billion to over 640 companies and is the lender of choice for entrepreneurs and venture capital firms seeking growth capital financing.
PennantPark Investment
PennantPark offers investors selectively designed exposure to middle-market credit.
This could be an outstanding total return play for investors and pays a massive 13.81% dividend. PennantPark Investment ( NASDAQ: PNNT ) is a business development firm specializing in direct and mezzanine investments in middle-market companies. It invests in mezzanine debt, senior secured loans, and equity investments.
The firm invests in equity securities and debt transactions through:
- Preferred stock
- Common stock
- Warrants
- Options
- Subordinated loans
- Mezzanine loans
- Senior secured loans
It seeks to invest in companies based in the United States.
PennantPark seeks to invest between $10 million and $50 million in its portfolio companies. Its mezzanine loans, senior secured loans, and other investments in its portfolio companies are between $15 million and $50 million. The firm may also make non-control equity and debt investments.
SFL Corporation
The company has a substantial portfolio of owned and partially owned vessels employed on long-term fixed charters.
With a big 9.5% dividend and the potential to break out of a long trading range, this could be a total home run for patient investors. SFL Corp. Ltd. ( NYSE: SFL ) is a maritime and offshore asset-owning and chartering company that owns, operates, and charters vessels and offshore-related assets on medium—and long-term charters.
The company operates in various maritime, shipping, and offshore sectors, including:
- Oil transportation
- Dry bulk shipments
- Chemical transportation
- Oil products transportation
- Container transportation
- Car transportation
- Drilling rigs
As of December 31, 2023, the company owned:
- Seven crude oil carriers
- Six oil product tankers
- 15 dry bulk carriers
- 32 container vessels
- One jack-up drilling rig
- One ultra-deep-water drilling rig
- Five car carriers
It primarily operates in Bermuda, Canada, Cyprus, Liberia, Namibia, Norway, Singapore, the United Kingdom, and the Marshall Islands.
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