Right now is one of the best times to invest in some of the most hated companies in U.S. history.
And while they may be "hated," they're also some of the most successful.
Their roots trace back to the corporate raiders of the 1980s. Tycoons such as Carl Icahn, Victor Posner and T. Boone Pickens are part of their lore. They've morphed into somewhat tamermanagers since then, but they still find creative ways to generate high returns on capital.
I'm talking about private equity firms.
While private equity shops have drawn the ire of some of's hallway monitors -- they've been accused of stripping companies down and costing American jobs -- they're also experts at maximizing profitability.
What's their secret?
They sometimes act as knights in shining armor -- helping troubled businesses turn things around -- while lendingat exorbitant interest rates of around 16%, even in a near-zero interest rate environment.
Other times, these companies may deploy billions of dollars into an unconventional-- like single family homes, for example -- as I explained in this article.
Private equity is how the "1%" invests. Only the richest people and businesses in the country -- the Mitt Romneys and Goldman Sachs of the world -- trust these companies with their.
They are a go-to vehicle for charities, university endowments and pension funds that need at least 8% in annual returns to meet obligations. Yale University, for example, keeps roughly one-third of its endowment funds with them.
The good news is you don't have to be a part of the wealthy elite to participate in private equity's outsized returns. That's because about a dozen of them now trade on stock exchanges... They've become an oxymoron -- publicly listed private equity firms.
And now is an opportune time to invest in them...
Private equity funds are not for all markets. They tend to do well in bull markets, when the value of their equity holdings rises and they can their holdings through initial public offerings (IPOs) or by selling them to other companies.
Low interest rates are also a positive. Cheap debt makes leveraged buyouts less costly and thus potentially more profitable.
Private equity firms generally commit capital for the long-term, usually five to ten years. The key is to buy them early in an economic recovery, as appears to be the case right now, and be prepared to hold them for several years as the recovery gains strength.
Last month, Blackstone Group (BX) reported blowout fourth-quarter , 43% above 2011's levels. Apollo Global Management (APO) did even better, boosting fourth-quarter an astronomical 2,140% higher than a year earlier.
Dividend yields vary widely. Giants like The Carlyle Group (CG) and Blackstone trailing 12-month yields below 4%.
Others, however, are set up as business development companies, or BDCs. BDCs must return 90% of profits to investors -- which is great news for dividend lovers. These companies can make for great Retirement Savings -- that pay safe, rising dividends that can give retirement-age investors the potential second income we all dream about.
With a little digging, private equity yields of better than 6% can be found, including Apollo and THL TCRD).(
In fact, after Apollo's announced fourth quarter dividend yield of 19%., the company boosted its quarterly dividend 162% to $1.05 per share. While Apollo's dividend varies every quarter based on , if it maintains its $1.05 distribution, then it would have an effective
While their structures may differ, Apollo and THLshare one thing in common. They go just about wherever they can make .
KKR and Apollo, for example, recently made significantin . And as readers of my High-Yield newsletter know, I think there is to be made in the rental as the country becomes a "Renter Nation."
Carlyle bought controlling interests in a commodities hedge fund. KKR also launched a high-yield bond fund targeted at individual investors. Apollo entered the distressed debt in India.
While there's a big difference in their focus areas, mostfinancing to mid-sized businesses to develop new products, expand into new markets or operations.
These are typically not start-ups, but more mature companies with operating. THL , for example, focuses on companies with between $25 million and $500 million.
Middle-companies are a particularly attractive niche now that banks have pulled back from lending to them as they seek to reduce risk in the wake of the financial crisis.
As a result, private equity can demand interest rates of between 14% and 20%. Despite this high rate, companiesstill use private equity because they can borrow more capital than if they were to use traditional bank loans.
However, if you buy bear markets... Down markets and high interest rates can be tough because there's less deal-making activity and the value of the holdings tends to decline. This pattern can lead to volatile streams.of these companies, beware of
Action to Take --> My top two high-yield picks are THL Stocks. Both provide yields of more than 6% and appear to be riding the of an improving and strengthening stock .and Apollo Global Management. Either one of these could make ideal Retirement Savings
[Note: If you want to know more about Retirement Savings Stocks, then I invite you to check out this special presentation. These stocks are a smarter, safer, and more profitable approach to income. Simply , if you're looking for a second income stream for your retirement, then it's the only way to go. Click here to learn more.]
Carla Pasternak is a leading incomeexpert, serving as Director of Income Research for High-Yield and Dividend Opportunities. Together, these newsletters her expertise in the hands of more than 200,000 subscribers each month.
Carla Pasternak does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.
This article originally was published at StreetAuthority.com:
Collect Up to 19% Dividend Yields By Investing Like the 1%
- Investment & Company Information
- private equity firms
- private equity
- Private equity funds
- interest rates