Here Are My Top 5 Ultra-High-Yield Dividend Stocks to Buy Hand Over Fist

Horizon Technology (HRZN) is a business development company (BDC) that specializes in providing financing to companies in the technology and healthcare sectors. There are several reasons why now might be a good time to invest in Horizon Technology's stock:

1. High Dividend Yield: Horizon Technology currently offers an attractive dividend yield of 11.4%. This high yield can provide a significant source of passive income for investors, especially those seeking to diversify their portfolio with dividend-paying stocks.

2. Discounted Valuation: Horizon Technology's stock is currently trading at a price-to-book (P/B) multiple of 1.2, which is lower than its closest competitor, Hercules Capital, with a P/B of 1.6. This suggests that Horizon Technology's stock may be undervalued compared to its peers, providing an opportunity for investors to buy shares at a discount.

3. Strong Portfolio Performance: Horizon Technology's portfolio has demonstrated consistent performance, with a focus on providing venture debt term loans to businesses in the technology and healthcare sectors. The company's non-accrual rate, which represents the percentage of loans that are not earning interest due to probable non-payment, was only 1% in Q4 2023, indicating a well-managed portfolio.

4. Growth Potential: Horizon Technology has the potential to benefit from the growth of its portfolio companies, particularly in the technology and healthcare sectors, which are known for their rapid expansion. Additionally, the company's deal terms often include warrants, providing an extra kicker for investors should one of its portfolio companies get acquired or go public.

5. Diversification: Investing in Horizon Technology's stock can provide diversification for investors, as BDCs focus on lending to a wide range of businesses in different industries. This can help to spread risk and potentially enhance returns.

In summary, Horizon Technology's high dividend yield, discounted valuation, strong portfolio performance, growth potential, and diversification benefits make it an attractive investment opportunity for income-seeking investors. However, it's essential to conduct thorough research and consult with a financial advisor before making any investment decisions.

Business Development Companies (BDCs) like Hercules Capital offer high dividend yields primarily because of their structure and the nature of their investments. BDCs are designed to provide financing to small and mid-sized businesses, often in the form of debt investments. These companies generate income from the interest on the debt they provide, and they are required to distribute at least 90% of their taxable income to shareholders in the form of dividends. This structure allows BDCs to offer attractive dividend yields to investors.

Hercules Capital focuses on providing financing to venture growth stage companies in the technology, life sciences, and sustainable and renewable technology industries. The company has a differentiated strategy that sets it apart from other BDCs, which contributes to its ability to offer a high dividend yield.

However, there are risks involved with investing in BDCs like Hercules Capital. Some of these risks include:

1. Credit risk: BDCs invest in small and mid-sized businesses, which can be riskier than investing in larger, more established companies. If the companies in the BDC's investment portfolio struggle or default on their loans, the BDC's income and net asset value (NAV) could be negatively impacted.

2. Interest rate risk: BDCs like Hercules Capital often use leverage to enhance their investment returns. If interest rates rise, the cost of this leverage could increase, potentially reducing the BDC's income and its ability to pay dividends.

3. Market risk: The value of the BDC's investments can be affected by factors such as economic conditions, industry trends, and overall market volatility. This can impact the BDC's NAV and its ability to generate income for dividend payments.

4. Liquidity risk: BDCs may invest in illiquid securities or make loans to companies that have limited access to other sources of financing. If these investments cannot be easily sold or if the borrowers default, the BDC's liquidity could be negatively impacted.

5. Regulatory risk: As regulated investment companies, BDCs are subject to certain restrictions and requirements under the Investment Company Act of 1940. Changes to these regulations or the way they are interpreted could impact the BDC's operations and its ability to pay dividends.

Investing in BDCs can offer the potential for high dividend yields, but it is essential for investors to understand the risks involved and weigh them against the potential rewards. Diversification across multiple BDCs and other income-generating investments can help mitigate some of these risks.