These companies with a gigantic dividend of over 8% can help you build passive income
A high dividend is particularly attractive to investors because it can generate a nice passive income from a low investment. Let's see if these two companies can help you do just that!
Of course, I must start by saying that a high dividend is not necessarily the best thing. For several reasons. First, a high dividend can be the result of a company not having enough opportunities to invest in its growth and therefore having to pay out profits to shareholders. This may mean that the firm is unable to grow and compete with other firms in the market.
Secondly, a high dividend may be temporary and may be jeopardised if the firm runs into financial difficulties. If the firm does not have enough cash to pay its liabilities, it may have to reduce or cancel the dividend payment.
Now to the companies themselves.
Gladstone Commercial $GOOD-0.5% is a real estate investment trust (REIT) that specializes in commercial real estate. The company focuses on the acquisition and management of office and industrial properties throughout the United States. It seeks to provide its clients with income from the long-term ownership and leasing of these properties.
As of March 31, 2023, their portfolio included 137 properties in 27 states leased to 111 different tenants. Since going public in 2003, they have consistently and disciplinedly expanded the portfolio by 18% per year and have doubled the assets since January 2011. Occupancy is 95.9% and has never fallen below 95.0%.
Most of the income (about 80%) comes from industrial property rentals. Office properties account for the remaining 20% of revenue. The company is traded on the NASDAQ stock exchange.
It has a total market capitalization of about $500 million, which puts it among the smaller REITs focused on industrial and office real estate. Disadvantages include exposure to fluctuations in the real estate market and the economic cycle in general. We saw that for ourselves this year.
Unfortunately - the high dividend isn't necessarily all that rosy. Despite the higher dividend yield, this fund delivers less growth than the broader market.
The Q1 2023 results talked about some positive phenomena that occurred from January through the end of April. Most notably the acquisition of a 76,089 square foot industrial property that is leased to a single tenant for 20 years. This should increase NOI by half a million annually and was much needed to keep up with rate increases.
NOI (Net Operating Income) is a metric used to measure the performance of real estate investments. NOI is the net operating income from properties that are owned and operated by the REIT.
NOI is calculated by subtracting the cost of operating and maintaining the properties from the total rental income. This indicator shows how well the REIT uses its properties to generate income.
The outlook for the common stock does not look promising, and given the reorganization necessary to reduce debt, analysts are leaning toward the possibility of a dividend cut. Unfortunately, that's not exactly a good outlook and it appears that this 11.25% dividend might not be sustainable. On the other hand, the company has a really good real estate portfolio that could keep it afloat in the long run.
OneMain Holdings $OMF-1.5%
OneMain Holdings is a personal and consumer finance company. It provides loans and financing for people with poor credit histories or limited access to traditional banking.
OneMain Holdings was formed in 2021 by the merger of Springleaf Financial and OneMain Financial. It is one of the largest consumer lending companies in the United States.
It works with more traditional banks but is not regulated like a traditional bank. Its interest rates are typically higher. It operates more than 1,300 branches in 48 U.S. states and employs about 15,000 people. Its customers are mostly low-income people or those with low credit scores.
It provides loans for motorcycles, automobiles, down payments, and personal loans for a wide range of purposes from travel to health care. The average loan amount is around $10,000. OneMain Holdings shares are traded on the NYSE.
OMF is not afraid to share its wealth with shareholders either, which is a positive as it can be considered a shareholder-friendly company. Especially since it has paid some significant extraordinary dividends in addition to its regular quarterly dividends during good times .
Looking at the payout ratio, it seems clear that they are not in danger of any reduction. This is even with the expectation that profits will be more moderate in the future. The payout is around 63%.
OMF is a fairly impressive business that generates profits and massive cash flows, and also provides investors with an attractive and growing dividend. However, there could be some risks as a result of lending to consumers with low creditworthiness and unsecured loans. Unemployment is expected to rise during a recession, which would impact outstanding loans and the potential loan pool going forward. They were able to successfully navigate through Covid, so they might be able to navigate through a more normal recession in the future.
A more patient investor could get a better price when the next recession comes. At the same time, the yield seems sustainable in this case.
Disclaimer: This is by no means an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.
