2 Picks With One Of The Highest Yields In The Sector And Potential Upside

Core Viewpoint - The article emphasizes the importance of stable and predictable dividends for dividend investors, while also highlighting the potential for price appreciation and the need to avoid high-risk investments [3][12]. Company Analysis FS KKR Capital - FS KKR Capital (NYSE:FSK) is the second largest Business Development Company (BDC) with a Net Asset Value (NAV) of approximately $6.7 billion, providing a safety net through diversification [4]. - FSK has underperformed the overall BDC market since 2020, trading about 17% below its NAV, presenting a potential opportunity for price convergence [4][5]. - The company has faced challenges due to elevated non-accruals, which negatively impacted Net Investment Income (NII) generation, compounded by high leverage [5]. - FSK's forward dividend yield is around 14.4%, with a more conservative yield of 12.9% when excluding supplemental dividends, indicating a safe yield with potential for price gains [5][6]. - Recent financial performance shows a decline in non-accruals, stable portfolio quality, and an increase in total investment income by $5 million, leading to an adjusted net investment income per share increase to $0.75 [7]. - The weighted average EBITDA of FSK's portfolio companies has grown by approximately 12% year-over-year, reaching $225 million, indicating strong underlying business performance [7]. - FSK has improved its balance sheet by reducing the debt-to-equity ratio to 1.09x, below the sector average of 1.16x, enhancing its financial stability [8]. EPR Properties - EPR Properties (NYSE:EPR) is a unique equity REIT focused on unconventional property types, with 93% of its assets in experiential real estate, including theaters and ski resorts [9]. - The company offers a dividend yield of 7.3%, one of the highest in the equity REIT sector, supported by a forward Price to Funds from Operations (P/FFO) ratio of 9.8x [9][10]. - EPR maintains a conservative AFFO payout ratio of 71%, ensuring cash flow stability and the ability to manage lease expirations effectively [10]. - The debt structure is well-managed, with minimal borrowings due before 2026, allowing EPR to avoid unfavorable debt repricing [11]. - Management plans to divest theater properties and reinvest proceeds into higher multiple segments, which could drive multiple expansion as interest rates decline [11].