Dividends remain all the rage for investors seeking income, and with good reason. Treasurys are disappointing with yields of around 1.7% for 10-year T-Notes and corporate bonds like the ones just floated by Apple Inc. (AAPL) don't yield much more.
And "high interest" CDs or savings accounts? Don't even bother.
That has resulted in a hunger for dividend stocks, and we all know the usual suspects — telecoms, utilities, blue chip consumer staples and the like. But many of these stocks can be crowded trades and sometimes still only offer you up a dividend yield that begins with the number 2.
Take buy-and-hold darling Coca-Cola (KO). The stock has just a 2.6% yield and is up against an all-time high despite a forward P/E over 18. To top it off, it is struggling with its top line right now. You may not go bankrupt investing in Coke right now, but are you OK with simply a 2.6% dividend if shares move sideways for a few years?
For those looking for income that's a bit more substantial and are willing to take on a little more risk, here are three off-the-beaten-path income players with 5% yield.
Garmin: 5.4% yield
Yes, that Garmin (GRMN), the GPS company that most folks think of as a dinosaur thanks to smartphone navigation programs like Google Maps.
But keep in mind that this firm does much more than those suction cup-mounted gadgets for your car. It is involved in both airplane and marine navigation systems, as well as dash-mounted systems built into autos like the Mercedes-Benz. The company is also dabbling in pet location technology for lost dogs and fitness apps for runners and bikers to monitor their performance and their exercise routes.
This diverse product catalog has allowed Garmin to stay stable lately. And while sales have currently flatlined, that doesn't mean the company is in trouble. It had cash and marketable securities worth about $1.38 billion at the end of the last quarter — over 20% of the company's entire market value. The dividend is sustainable at about 70% of earnings per share, too.
Still, why buy a dead money GPS stock? Well, in February Garmin approved a $300 million share repurchase. And in the last two years Garmin has gone on a buying spree with acquisitions that grow its footprint geographically and expand into new areas for navigation. The late 2012 purchase of Sweden's Nexus Marine is a prime example of this.
I'm not saying that Garmin will double from here. But with a 5% dividend, a ton of cash on the books and recent acquisitions that could pay off, this could be a nice long-term investment.
Martin Midstream Partners: 7.5% yield
You can't talk dividends without talking MLPs. And among the many options out there, Martin Midstream Partners (MMLP) is one of my favorites. While many popular partnerships focus on pipelines, Martin stands out because of its diversity of operation.
Beyond pipelines, Martin Midstream is also involved in oil storage terminals, marine transportation assets, sulfur-based fertilizer plants and one emulsified sulfur blending plant. That breadth of operations has helped Martin grow revenue by 125% from fiscal 2009 to 2012.
The downside is that dividends aren't increasing dramatically, edging up only slightly each year. But the company has never reduced a payment quarter-over-quarter dating back to its first distribution in 2003. And with a current yield of almost 7.5%, it's not like the company has to burn down the house with dividend increases to deliver a keen return on your investment.
And with shares almost tripling the market so far in 2013 you have a nice sweetener with capital appreciation, too.
Blackrock Kelso: 10.7% yield
Blackrock Kelso Capital Corp. (BKCC) is a business development company, or BDC. It generates revenue from loans to mid-sized companies, and as the payments on principal roll in regularly, Blackrock Kelso rolls out regular dividends to its shareholders.
BDCs live and die by their portfolio, and Blackrock Kelso has a diverse list of investments that I find attractive. Check it out for yourself, and consider that hedge funds including Legg Mason Capital Management and Citadel Investment Group have recently gotten bullish on the stock. Clearly they like what they see in Blackrock Kelso. If big financial players like this financial player's loan portfolio, that's a pretty good endorsement.
Obviously a recession would be painful for Blackrock Kelso investors. Not only will shares take a hit but the dividend may tumble, too. For instance distributions went from 43 cents a quarter at the end of 2008 to just 16 cents in 2009 thanks to the downturn.
But it swings both ways. The current yield of over 10% is calculated from 26 cents paid quarterly — yet Blackrock Kelso paid 32 cents a share as recently as 2010. If the economy turns a corner and more mid-sized companies look to expand, Blackrock Kelso will benefit handsomely.
The company trades at book value and has a decent portfolio of investments that should keep it reasonably stable in 2013 and hopefully a big income driver for your portfolio going forward.