Keith Speights, The Motley Fool
5 min read
In This Article:
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Ares Capital offers an ultrahigh dividend yield and a history of delivering market-beating total returns.
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Duke Energy is a safe haven with solid growth opportunities.
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Verizon Communications has increased its dividend for 18 consecutive years.
Warren Buffett's secret is out of the bag. He's stepping down as CEO of Berkshire Hathaway at the end of the year. However, the legendary investor has another secret that many don't know about: a portfolio of stocks that doesn't appear on Berkshire's regulatory filings.
Berkshire Hathaway acquired General Re in 1998, which had bought New England Asset Management (NEAM) three years earlier. This deal gave Buffett a "secret portfolio" often overlooked by investors.
But if you're seeking great income opportunities, you can find plenty among NEAM's holdings. Some of the stocks offer exceptionally juicy dividends. Here are the smartest high-yield dividend stocks in Buffett's "secret portfolio" to buy right now.
NEAM owns 225,900 shares of Ares Capital (NASDAQ: ARCC), giving Buffett an indirect stake in the largest publicly traded business development company (BDC). Savvy income investors know that BDCs often provide attractive dividend yields because the companies must return at least 90% of their earnings to shareholders as dividends to be exempt from federal income taxes.
I think Ares Capital has the best dividend program in the BDC industry. Its forward dividend yield is an ultra-high 9.12%. Ares has paid stable or increasing dividends for 63 consecutive quarters. The company has also delivered the highest base dividend growth over the last 10 years of any externally managed BDC with a market cap of over $700 million.
Ares Capital could even appeal to investors who aren't primarily focused on income. Since its initial public offering in 2004, the stock has delivered a 70% greater cumulative total return than the S&P 500 and an average annual total return of 13%.
With the Federal Reserve concerned about stagflation, could Ares Capital's business suffer over the near term? Maybe. However, CEO Kort Schnabel believes his company could increase its market share in direct lending. BDCs such as Ares Capital could also be more attractive to middle-market businesses as banks reduce their risk exposure.
Utility stocks tend to be great safe havens for investors during turbulent periods. Buffett's "secret portfolio" owns several solid utility stocks. I think Duke Energy (NYSE: DUK) is the best of the bunch. The company provides electricity to 8.6 million customers in North Carolina, South Carolina, Florida, Indiana, Kentucky, and Ohio. It also operates natural gas utilities that serve 1.7 million customers in the Carolinas, Kentucky, Ohio, and Tennessee.
