We recently compiled a list of the 7 Dividend Stocks with 10%+ Yield. In this article, we are going to take a look at where Saratoga Investment Corp. (NYSE:SAR) stands against the other dividend stocks with 10%+ yield.
Dividend stocks have kept their appeal among investors due to the steady yields and income they provide. However, in the past year or so, all eyes have been on anything related to artificial intelligence. These stocks have not only surged but have also lifted the overall market much higher compared to dividend-paying stocks. Nevertheless, tech stocks have also joined the dividend game, unable to resist the trend as several major companies began distributing dividends starting in 2024. This highlights the financial strength of these companies, as they generate more cash than they currently need to reinvest.
Despite the lower yields on these tech stocks, their dividend payouts are punching above their weight contributing to the overall payments made by companies in the broader market. According to a report by S&P Dow Jones Indices, in the second quarter of 2024, companies listed in the index collectively paid out $153.4 billion in dividends, marking an increase from $151.6 billion in the previous quarter and up from $143.2 billion in the same period last year. The report highlighted that Alphabet’s dividend initiation contributed $9.3 billion to the Q2 2024 increase, while initiations from Brookings, Meta Platforms, and Salesforce in Q1 2024 accounted for $7.2 billion, collectively making up 53% of the S&P 500’s year-to-date dividend gain. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said that although the gains without the new initiations are expected to achieve a record dividend payment for 2024, their ongoing commitment to dividend payouts will notably boost the total payout, prompting investors and boards that do not currently pay dividends to reassess their strategies.
Dividend investors often debate between dividend yields and dividend growth, not fully realizing that dividend yield is crucial for sustained dividend growth. For instance, in the case of the Dividend Aristocrats Index, which has raised dividends for 25 consecutive years, maintaining a high yield hasn’t been at the expense of growth. Over the past 26 years ending in 2023, the index consistently outperformed its benchmark with higher yields, typically ranging between 2% and 2.9%. On average, the index boasted a yield of 2.5%, significantly higher than the market average of 1.8%, according to a report by S&P Dow Jones Indices. To learn more about high-yield stocks, read Very High Yield Dividend Stocks With Upside Potential.
However, it’s worth noting that high dividend yields aren’t always the most practical choice. Analysts generally suggest targeting dividend yields in the range of 3% to 6%, as this range typically offers potential for both dividend growth and appreciation in stock value. In one of its reports, an Illinois-based financial planning company, Nuveen, highlighted that global companies with moderate dividend yields (between 0% and 3%) tend to demonstrate stronger earnings growth, profitability, and profit margins compared to those with higher yields or those that don’t pay dividends at all. These factors also contribute to reducing risk, particularly during periods of market volatility.
The debate between these two strategies appears endless. We believe that combining growth and yields can present better results for investors. How investors navigate yield traps ultimately depends on their caution and strategy. With that, let’s take a look at some of the best dividend stocks with over 10% yield.
Our Methodology:
For this list, we used a stock screener and selected dividend stocks with yields above 10%, as of July 16. Among those stocks, we chose companies that have relatively stable dividend histories, however, a lot of the companies on the list don’t have a consistent record of paying dividends due to their exceptionally high yields. They either stopped or reduced their dividend payments in 2020 due to the pandemic or because they were facing financial difficulties. We’ve also mentioned the hedge fund sentiment for each stock using Insider Monkey’s Q1 2024 database. The stocks are ranked in ascending order of their dividend yields, as of July 16.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A financial analyst working on a projection screen and researching market trends.
Saratoga Investment Corp. (NYSE:SAR)
Dividend Yield as of July 16: 12.73%
Saratoga Investment Corp. (NYSE:SAR) is a New York-based capital market company that provides debt financing and equity capital to middle-market companies. Though the company has underperformed its peers over time, this year might be a turning point. Interest rates have remained stable and market expectations suggest minimal changes for the rest of the year. This stability has led to higher recurring net interest margins for the company’s portfolio in fiscal Q1 2025, compared to the previous year. The company’s strong reputation and unique market position, along with the continued development of sponsor relationships, are generating attractive investment opportunities from high-quality sponsors. In addition, there are early signs of a potential rise in mergers and acquisitions (M&A) in the lower middle market, as evidenced by multiple repayments in recent months. The company reported a total investment income of $38.7 million in fiscal Q1 2025, up 11.7% from the same period last year.
Saratoga Investment Corp. (NYSE:SAR)’s strong operating performance is built on the high quality, resilience, and balance of its $1.096 billion portfolio, even in the current environment. Despite significant challenges with two portfolio companies, Pepper Palace and Zollege, the company has taken decisive actions. This quarter, both investments were further marked down by $1.2 million, leaving a total combined remaining fair value of $4.4 million. The company has taken full control of these investments through consensual restructurings with the previous sponsors. The Zollege restructuring was completed in the first quarter, and the Pepper Palace restructuring is imminent. The company is actively implementing management changes, capital structure improvements, and business plan adjustments, which have the potential to increase future recovery value.
In addition to its growing portfolio, Saratoga Investment Corp. (NYSE:SAR) is also a strong dividend payer. On May 23, the company announced a 1.4% hike in its quarterly dividend to $0.74 per share. This marks the seventeenth consecutive quarterly dividend increase. This was the company’s first dividends for FY25, following a total of $2.85 per share in dividends for fiscal year 2024, which represented a 16.8% increase from the previous year. With a dividend yield of 12.73% as of July 16, SAR is one of the best dividend stocks on our list.
Saratoga Investment Corp. (NYSE:SAR) was a part of 3 hedge fund portfolios at the end of Q1 2024, compared with 6 in the previous quarter, according to Insider Monkey’s database. The stakes held by these hedge funds have a collective value of over $7.5 million. Among these funds, Two Sigma Advisors was the company’s leading stakeholder in Q1.
Overall SAR ranks 3rd on our list of the best dividend stocks to buy with 10%+ yield. You can visit 7 Dividend Stocks with 10%+ Yield to see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of SAR as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than SAR but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.