The world is hungry for yield.
The yield on the benchmark 10-year Treasury note is just 2.1%, while the yield on longer-term U.S. government debt is just a tad better at about 2.8%. Meanwhile, the average yield you get on dividend stocks in the S&P 500 is just 1.8%.
If you’re a yield-hungry investor, you must consider trying some different dividend cuisine — and one type of high-yield cooking that pleases the palate is private equity dividend stocks.
Most stocks in the private equity space are structured as limited partnerships. This means they are designed as so-called pass-through securities, which means they enjoy favorable treatment earnings that are taxed just once at the corporate level before being paid out to shareholders.
For yield-oriented investors, this structure means some big dividend payouts. And, during the right market conditions (such as those of the past two years), many private equity stalwarts also have delivered big in terms of share price performance.
The Blackstone Group L.P. (BX)
In the case of Blackstone Group, you’re getting the private equity firm that’s the biggest and arguably the best in the business. In fact, BX is the largest private equity firm in the U.S., with assets of $70 billion in their private equity operation alone. The company’s total assets under management are a massive $248 billion as of September 2014.
Click to EnlargeThe fiscal prowess of Blackstone has helped the company engineer some very big deals, including high-profile IPOs such as SeaWorld Entertainment Inc. (SEAS), Hilton Worldwide Holdings Inc (HLT), and likely very soon IndCor Properties, an estimated $8 billion REIT.
In October, Blackstone reported a year-over-year surge in what’s known in the private-equity world as economic net income to $758 million, or 66 cents a share. That number was up from the $640 million, or 56 cents a share, that the company reported in the same quarter a year prior (economic net income includes unrealized gains and cash earnings).
Although the economic net income was the highest ever for Blackstone, the number actually fell short of expectations and the stock sold off in response.
For the year, BX shares are up 3.7%, but over the past two years shares are up a very big 117%.
For yield-hungry investors, Blackstone offers a dividend yield of 5.2%, a metric that ranks it No. 12 on our recently published list of America’s 25 Highest-Yielding Large-Dividend Stocks.
KKR & Co. L.P. (KKR)
My other preferred private-equity dining spot for yield-hungry investors is Kohlberg Kravis Roberts & Co. L.P., or simply KKR.
Click to EnlargeKKR is an icon in the corporate deal-making world, as it’s been at the hub of many of the highest-profile deals in American business history. The most well-known of these deals was the RJR Nabisco buyout, which at the time was the biggest ever at about $25 billion.
If you want to know how the cheese gets made in a buyout deal, check out the book Barbarians at the Gate: The Fall of RJR Nabisco, by investigative journalists Bryan Burrough and John Helyar. You’ll definitely come away with a better understanding of what private-equity firms do.
KKR isn’t as big and burly in terms of assets as Blackstone, but still it is no slouch at private equity assets of $59.2 billion. In late October, KKR said third-quarter economic net income was $508.7 million.
That number was down from the $613.7 million in the same quarter a year ago; however, the adjusted earnings per share of 50 cents was better than consensus estimates for just 44 cents per share.
Unlike BX, KKR shares actually are down year to date, off some 9.1%. Over the past two years, the stock has performed very well, up 58.2%. Yet despite the recent downtrend in the shares, KKR is one of those dividend stocks perfectly suited to those who want to consume big yields.
In fact, that aforementioned list of highest-yielding large-dividend stocks ranks KKR in third place, with an outstanding yield of 8.08%.
So, if dividend stocks with yield are what you’re after, step up to the platters served up private-equity style with Blackstone and KKR.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.