Investors looking for stocks that can generate a ton of passive income will want to look at the recent activities of some of the world’s most successful investors. Billionaire hedge fund manager Ken Griffin has more than tripled Citadel Advisors’ position Hercules capital (NYSE:HTGC) during the last three months of 2023.
Hercules offers a return that is more than six times higher than the average dividend-paying share in the benchmark S&P500 Table of contents. Nor are they the only ultra-high-yield stocks that billionaires have been buying in droves. Israel Englander increased Millennium Management’s bet on the tobacco giant Altria Group (NYSE:MO) by 51% to more than 2.2 million shares in the fourth quarter of 2023.
Hercules capital
Hercules Capital is a business development company (BDC) that gives ordinary investors access to innovative technology and life science companies. The investments include a mixed bag of successful companies, including Axsome Therapeutics, Palantir TechnologiesAnd Transmedics 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 earnings to shareholders as dividends. Hercules offers a regular quarterly cash dividend of $0.40 per share, which at recent prices equates to a yield of 8.8%.
The majority of Hercules Capital’s assets are invested in debt structured with warrants, shares and options. The value of such assets can be unpredictable and therefore the BDC pays an additional dividend every year. The latest, announced in February, was $0.32 per share, or $0.08 per share per quarter.
Assuming next year’s additional payout is in line with this year’s, the stock offers a yield of 10.6% at recent prices. That said, the additional payout fluctuates 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 deliver multibagger returns.
Altria Group
Income-seeking investors who are more interested in steady payout increases than dividend increases will want to look at Altria Group, the company that sells Marlboro in the US market. Last August, the company increased its dividend payout for the 58th time in 54 years.
Altria’s dividend payout has only grown 22.5% over the past five years, but it can still produce huge amounts of passive income. At recent prices it offers a huge yield of 9.5%.
Smoking has been on the decline for decades, but recent losses are more severe than normal. Last year, the number of combustible cigarettes Altria sold fell by 9.9%. The shares are offering ultra-high yields as the market is nervous that strong competition from flavored e-vapor products like Elf Bar could make it impossible to grow profits.
Many Elf Bar fans don’t realize that the FDA banned flavored e-vapor products in 2020. Enforcement has not been effective, but the government agency has accelerated its efforts in recent months. Last December, the FDA worked with Customs and Border Protection to seize 41 shipments of illegal e-vapor products. So far this year, the FDA has already sent warning letters to 61 brick-and-mortar retailers and 19 online retailers for selling illegal e-cigarettes.
Altria Group acquired NJOY in 2023 and it is currently one of only three e-cigarette brands cleared by the FDA.
Despite the challenge of illegal-flavored e-cigarettes, Altria Group reported adjusted earnings that rose 2.3% last year. With increased enforcement of the FDA’s flavor ban and the rollout of NJOY underway, this legendary dividend payer could grow its earnings by a mid-single-digit percentage through 2024 and for many years beyond.
Should you invest $1,000 in Hercules Capital now?
Consider the following before purchasing shares in Hercules Capital:
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Cory Renauer holds positions at Axsome Therapeutics and TransMedics Group. The Motley Fool holds positions in and recommends Axsome Therapeutics, Palantir Technologies, and TransMedics Group. The Motley Fool has a disclosure policy.
Billionaires are hand-buying these two ultra-high yield dividend stocks. Are these smart purchases for your wallet? was originally published by The Motley Fool
