The best high-dividend stocks for 2021 have been called. This is an opportunity to collect yields higher than 10%.
Dividend stocks in 2020 faced slashing interest rates, a global pandemic, a noisy presidential election, market crash, and recovery.
Today’s highest dividends are coming from master limited partnerships (MLPs) and business and business development companies (BDCs).
Oil markets were crushed earlier this year.
The Saudis and the Russians played a rousing game of chicken as the pandemic erased much of the global energy demand.
We saw negative prices for crude oil as there was no place left to store oil and gas.
Traders were willing to pay someone to take the stuff off their hands.
Oil prices have recovered somewhat, and the vaccine announcement from Pfizer Inc. (NYSE: PFE) gave them a big lift earlier this week. As we see the vaccine delivered worldwide, oil demand should begin to rise and stabilize at higher levels, lifting the price higher.
This should strengthen MLP dividend yields down the line. These sport double-digit yields right now. There is also a good chance we see dividend hikes from many MLPs next year.
Our best dividend stock for 2021 is one of those MLPs.
BDCs have also been hammered in 2020. The Wells Fargo Business Development Company Index is off almost 30% year to date.
With COVID-19 closing down segments of the economy, there was a real concern that many businesses that borrowed from BDCs would have a hard time paying back the money.
The tides are set to reverse in both markets, and we have a high-yield dividend stock from each.
This first dividend stock pays a 10% yield…
Ares Is a Dividend Stock Yielding Double Digits
Many BDCs make bridge and mezzanine loans to support M&A deals. Mid-market M&A has disappeared thanks to the coronavirus.
Looking ahead to 2021, all of that is about to change thanks to the prospects of an effective vaccine. Credit quality has been better than many feared, and it is going to improve.
M&A will come roaring back in 2021, and BDCs that lend to that market will have a field day.
Ares Capital Corp. (NASDAQ: ARCC) is our favorite business development company for 2021. Its association with alternative investment and private equity leader Ares Management Corp. (NYSE: ARES) helps it obtain deal flow other firms will not ever see.
Since its IPO in 2004, it has invested $60 billion with a gross internal rate of return of 14%.
Ares Capital has also outperformed the S&P 500 since the initial offering.
At the current price, the shares yield over 10%.
It is also trading at a discount to the loans’ value and other investments it has made.
The dividend is secure and may be raised if we get a vaccine and middle-market lending conditions continue to improve.
The people running the firm are excited about the long-term prospects of the business. The CEO, co-president, and an executive vice president of Ares Capital all made six-figure open market stock purchases at the end of October.
Now, here’s a dividend stock with a whopping 14% yield.
The Best High Dividend Stock for 2021
Our favorite pick in MLPs is MPLX LP (NYSE: MPLX). If it has to do with gathering, storing, or moving oil, natural gas, or natural gas liquids, MPLX is involved. It owns pipelines, storage caverns, storage tanks, terminals, boats, barges, and trucks.
MPLX is heavily biased toward natural gas, which is a good thing. Natural gas is used for cooking, heating, and generating electricity, so demand is steady for crude oil.
With crude oil down over 30% in 2020, natural gas prices are higher by 35%. MPLX’s customers will have no problem paying their transportation and storage bills, so the cash will keep rolling in and being sent out as dividends.
MPLX pays a 14.3% dividend right now that is covered by cash flows. It is generating so much cash flow that it’s also buying back stock. The company announced a $1 billion buyback of publicly traded units last week.
MPLX is in all the ETFs and funds that invest in master limited partnerships. The uninformed forced selling of these funds has created a fantastic opportunity for income investors.
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Source: Money Morning