Safe Dividend No. 2
NGP Capital Resources

The second safe, high-yielding business is a company called NGP Capital Resources (Nasdaq: NGPC) . NGPC currently yields around 10%... and its average annual returns should be around 20%, with 9.5% coming to you in dividends and 10.5% in price appreciation.

Simply put, money lending is a very stable, predictable business... as long as people want to borrow.

Houston-based NGPC specializes in energy-patch money lending. The proper term for NGPC's industry is "mezzanine energy finance." Even though it sounds complicated, it's actually a very simple business. All NGPC does is provide financing to very small businesses in the oil patch. These companies are almost always private, fast-growing, and desperate for cash.

NGPC's loans range in size between $10 million and $50 million, and terms vary. NGPC is not subject to many of the limitations that govern traditional lending institutions, so it can be more flexible and close deals quickly. Sometimes it provides mezzanine financing... sometimes it provides credit facilities... or senior loans... or subordinated loans... and if it can, it takes an equity kicker. That means NGPC participates in the companies' growth as well.

Like Gladstone Capital, NGPC only lends money to very small companies. In other words, it's a BDC. So, like Gladstone, it invests in small businesses, which is a great way to make money...

For starters, tiny companies don't have access to capital markets. They can't issue stock or bonds, and banks aren't interested. So they have a hard time borrowing money and accept high rates to get it.

Secondly, tiny companies grow fastest... Not only are small companies the most desperate companies in the market for cash, but they have the most to gain from a loan. So they'll pay any price to get it... sometimes as much as 20% in annual interest payments, plus a piece of the ownership.

Third, investing in small companies allows NGPC to spread its portfolio over a large number of companies, sectors, industries, and geographical locations. Diversification is one of the secrets of the lending business. The more companies you hold, the more stable your returns become and the less it hurts when one of your loans blows up. NGPC has approximately 15 investments and considers companies in oil, gas, coal, electricity, transport, development, production, exploration, and pipelines. This is another reason to expect very stable returns from NGPC.

Finally, tax is the best reason for investing in small companies. The U.S. government thinks small businesses are vital to the economy and gives huge tax breaks to companies that lend money to them. NGPC is one of these companies.

As a result, NGPC doesn't have to pay any corporate tax. In return for its tax exemption, NGPC must invest in a diversified portfolio of small companies, and it must pay out at least 90% of its revenue to shareholders in the form of distributions.

In addition, NGPC's management is the best in the business.

I could tell you about the deep Ivy League, Wall Street, and Big Oil footprint that's all over these guys' resumes. According to the CEO John Homier, "the seniors in our group probably bring together 70 or 80 years, if not more, of cumulative experience in the energy finance business."

But I have something far better: I contacted one of its competitors and asked him what he thought of NGPC's management team.

His name is Rick Rule, founder of Global Resource Investments. Global Resources was one of the very few boutique investment firms that survived the 20-year-plus bear market in resource investing. It's no exaggeration to say that Rick knows every single important executive in the resource business, because for years and years Rick was the only person in the world who could raise a significant amount of money for small resource companies like the sort NGPC deal with. Not only is Rick a competitor of these guys, he's also been a customer of theirs and a partner with them. Rick gave them the perfect reference. He told me these guys are the best in the business.