Investors looking for stocks that can generate significant passive income want to examine the recent activity of some of the world’s most successful investors. Billionaire hedge fund manager Ken Griffin more than tripled Citadel Advisors’ position in Capital Hercules (NYSE:HTGC) during the last three months of 2023.
Hercules yields more than six times the average dividend-paying stock in the benchmark index. S&P500 hint. It’s also not the only ultra-high yielding stock that billionaires are relentlessly buying. Israel Englander increased Millennium Management’s bet on tobacco giant Altria Group (NYSE:MO) by 51% to more than 2.2 million shares in the fourth quarter of 2023.
Capital Hercules
Hercules Capital is a business development company (BDC) which allows ordinary investors to launch into innovative companies in the fields of technology and life sciences. Its investments include a mix of successful businesses including Axsome Therapeutic, Palantir TechnologiesAnd Transmedic Group.
Investors looking for passive income like to buy BDCs because these companies don’t have to pay income taxes as long as they return at least 90% of their profits to shareholders in the form of dividends. Hercules offers a regular quarterly cash dividend of $0.40 per share, which translates to an 8.8% yield at recent prices.
The majority of Hercules Capital’s assets are invested in structured debt with mandates, stocks and options. The value of these assets can be unpredictable, which is why BDC pays an additional dividend each year. The last one, announced in February, was $0.32 per share, or $0.08 per share each quarter.
If we assume next year’s extra payment is in line with this year’s, the stock yields 10.6% at recent prices. That said, the extra payment tends to fluctuate from year to year. Investors should remember that some years will be better than others, as many of this BDC’s somewhat risky investments will lose money while others will produce multiple returns.
Altria Group
Income-seeking investors, more interested in steady increases in distributions than dividend increases, want to look to Altria Group, the company that sells Marlboro in the U.S. market. Last August, the company increased its dividend for the 58th time in 54 years.
Altria’s dividend payout has only increased 22.5% over the past five years, but it could still generate huge passive income. At recent prices, it offers a whopping 9.5% yield.
Smoking has been in decline for decades, but recent losses are more severe than usual. Last year, the number of combustible cigarettes sold by Altria decreased by 9.9%. The stock offers an ultra-high yield as the market fears that strong competition from flavored vaping products like Elf Bar will make it impossible to continue rising profits.
Many Elf Bar fans don’t realize that the FDA banned flavored vaping products in 2020. Enforcement has been ineffective, but the government agency has ramped up its efforts in recent months. Last December, the FDA partnered with Customs and Border Protection to seize 41 shipments of illicit e-vape products. So far this year, the FDA has already sent warning letters to 61 brick-and-mortar retailers and 19 online retailers for selling illicit e-cigarettes.
Altria Group acquired NJOY in 2023, and it is currently one of three e-cigarette brands with FDA marketing approval.
Despite the challenge posed by illicit flavored e-cigarettes, Altria Group reported adjusted profit up 2.3% last year. With increased enforcement of the FDA’s flavor ban and the ongoing rollout of NJOY, this legendary dividend payer could grow earnings by a mid-single-digit percentage in 2024 and for many years to come.
Should you invest $1,000 in Hercules Capital right now?
Before buying Hercules Capital shares, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Hercules Capital was not one of them. The 10 selected stocks could produce monster returns in the years to come.
Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $540,321!*
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns April 15, 2024
Cory Renauer holds positions with Axsome Therapeutics and TransMedics Group. The Motley Fool holds positions and recommends Axsome Therapeutics, Palantir Technologies and TransMedics Group. The Motley Fool has a disclosure policy.
Billionaires are buying these 2 super high-yielding dividend stocks. Are these smart purchases for your wallet? was originally published by The Motley Fool
