I Am Betting Big On This Near-Perfect 8%-Yielding Income Machine For Early Retirement

Samuel Smith

Dec. 02, 2025

Summary

• This 8%-yielding machine is positioned for very strong upside, growing passive income, and relatively low risk.
• The market is ignoring this unrivaled combination of quality, growth, and high yield.
• Don’t miss out on three of my largest holdings.

I love investing in high-quality, high-yielding stocks that trade at attractive valuations because I believe that this is one of the surest paths to generating long-term total return on performance. This is because these types of companies do not need to deliver much in the way of growth. They still deliver a satisfactory 10 to 12% annualized total return that is in line with long-term averages for the S&P 500 (SPY) and dividend growth ETFs like the Schwab U.S. Dividend Equity ETF (SCHD).

However, by investing in individual stocks on a value basis, you can then overlay a capital recycling strategy to further accelerate the compounding process by selling these types of stocks once they appreciate the full value, and then recycling the capital to other attractively valued high-yielding opportunities.

In today’s article I am going to share are three of some of my highest conviction high-yield bets right now that I have significantly outsized positions in, and I believe will take me a long way towards achieving my passive income goals due to their high yields, high quality, and attractive valuations.

A Tax-Deferred Energy Infrastructure Gem

The first opportunity I’m going to talk about is Enterprise Products Partners (EPD). It is a leading midstream energy infrastructure MLP (AMLP) that issues a K-1 tax form. While some may view that as a deal breaker, I love it because it generally means that the distributions are tax deferred until I sell, and if I never sell my EPD units and I purchase more units over time to keep my cost basis above zero and then pass them on to my heirs, I will never pay taxes on them. Either outcome would be a win for me because if I sell my units, it means that they likely delivered significant total return outperformance, and I can still sell them at long-term capital gains rate, and if I never sell, then I get a lot of passive income tax-free and can pass on a high-quality income machine to my heirs.

EPD’s strength derives from its high-quality, fully integrated, and well-diversified portfolio of energy infrastructure, including pipelines, storage assets, processing plants, and export terminals for natural gas liquids, crude oil, and natural gas. Additionally, the vast majority of its cash flow is contracted and fee based, which means it is fairly well insulated against commodity price volatility.

Not only that, but it also has the only A- credit rating in the midstream sector, reflecting the fact that it has the strongest balance sheet among peers, including C-corporations like Enbridge (ENB) and Kinder Morgan (KMI). This is not surprising given that it has a 3.3x leverage ratio that is likely going to plummet next year as significant projects come online and begin generating EBITDA. Additionally, it has $3.6 billion of liquidity with a 17-year weighted average return to maturity on its debt.

Moreover, its distribution of nearly 7% on a next twelve-month basis is covered 1.5x by distributable cash flow, and that coverage ratio should only increase over the coming year as projects come online and it initiates a unit repurchase program that should, both of which should contribute to an improving distribution payout ratio. When you combine the company’s fundamental strength with its attractive yield and the potential for significant buybacks next year due to it authorizing a $3 billion buyback authorization with expected decline in growth capex by at least $2 billion next year, freeing up significant free cash flow, EPD looks very compelling right now.

High-Yield Exposure to Private Credit

The next income machine I am going to talk about is Morgan Stanley Direct Lending (MSDL), which is a business development company (BIZD) that is managed by Morgan Stanley (MS). My favorite thing about MSDL is that about 96% of its portfolio is invested in first lien senior secured loans. When combined with the fact that they are primarily sponsor-backed businesses with low-weighted average loan-to-values of about 40%, and the fact that MS is a reputable manager that owns about 11% of the underlying equity in MSDL and charges one of the most shareholder-friendly fee structures, I have a high degree of confidence in MSDL’s fundamental performance moving forward.

Thus far, it has done very well on that front, as non-accruals are only 1.2% of the portfolio cost and 0.6% at fair value, and PIK income remains one of the lowest in the sector at just 4% of total income, which is in fact about half of the sector’s average. The company also fully covers its dividend with $0.50 per share in net invested income this past quarter that is in line with its $0.50 per share quarterly dividend.

Additionally, it has been making improvements to its balance sheet by closing its first CLO at an attractive SOFR plus 1.7% rate, and also repriced its asset-based facility to SOFR plus 1.95%, which combined to help offset some of the headwinds against recent Federal Reserve rate cuts to net investment income per share. With the discount to NAV sitting at a mid-teens percentage at a time when peers like Ares Capital Corporation (ARCC) and Blackstone Secured Lending (BXSL) trade roughly in line with NAV, MSDL looks extremely cheap. In addition, it pays an 11.7% dividend yield that is fully covered by underlying net investment income, and even if it has to trim its sum due to future Federal Reserve rate cuts, it is still likely to remain at 10% or above on its current stock price for the foreseeable future, making it a very good source of passive income.

An Alternative Asset Manager with Massive Growth

The third income machine I am going to talk about today is Blue Owl Capital (OWL), which is an alternative asset manager similar to Blackstone (BX) and Brookfield Asset Management (BAM)(BN). It invests across three major business segments including direct lending, GP stakes, and real assets.

Its direct lending business represents about half of its assets under management and has been a big driver of its recent growth due to the boom in private credit and direct lending. GP stakes has also been performing well given the growing interest in alternatives and its real assets business has seen strong performance in its triple net lease business and explosive growth thus far in its digital infrastructure business as the company is making investments in the data center build-out for hyperscalers like Meta (META). With management fees up 29% year-over-year and company posting record fundraising of $57 billion over the past 12 months with $28 billion of undeployed capital that is expected to generate an additional $360 million in annual management fees as it is deployed, OWL has phenomenal growth momentum right now. In fact, at their latest investor day, management guided for an over 20% fee-related earnings per share CAGR over the next five years. When combined with its current 6% dividend yield and its investment grade balance sheet, OWL appears to be a very attractive combination of high current yield and very strong growth for the foreseeable future.

Risks & Investor Takeaway

Of course, no investment is risk-free. While EPD is a low-risk investment, its unit price does remain sensitive to energy price volatility in the near term, even if its cash flows are much more resilient. Additionally, it is heavily invested in NGL exports, which are dealing with some overcapacity challenges right now, and its significant investments in growth projects do expose it to execution risk, even if its track record is very strong.

MSDL is invested in the private credit space, which has been receiving a lot of negative press recently. While I believe that much of this is unwarranted hype, it is true that there is a possibility that the sector has engaged in risky lending practices and or a material economic downturn could lead to a spike in non-accruals. Additionally, the Federal Reserve’s potential to accelerate rate cuts under President Trump’s replacement for Jerome Powell next year could weigh heavily on net investment income per share and lead to a material dividend cut. However, this would likely affect the entire sector, so we do not think that MSDL will be penalized by Mr. Market for it. Instead, its performance will likely be much more dependent on its underwriting performance. Given the huge discount to NAV, we think the upside potential is much greater than the downside potential.

Finally, OWL is also exposed to private credit, which has been receiving a lot of negative press recently and is also invested in the digital infrastructure space, which is also suffering from concerns about an AI bubble. However, OWL’s private credit business has a 10-year track record with extremely low loss rates and is showing no signs of distress today. Moreover, its digital infrastructure business is grossly misunderstood as it has contractual guarantees in its arrangements to companies like Meta that help to insulate it from downside risks should the AI capex boom turn into a bubble and fail to deliver on current expectations.

Given my confidence and high degree of conviction in these businesses, I am making big bets on each of them. Between them, I enjoy an average yield of over 8%, giving me significant passive income in my push towards eventually achieving early retirement from dividends. It should therefore be of little surprise, then, that all three make up some of my largest positions at High Yield Investor.