Typically, investing in high-quality businesses comes at a premium price. However, these ultra-high-yield dividend stocks offer substantial dividends at incredibly cheap prices.
Stocks with above-average yields are often preferred by dividend-focused investors. But there is a trade-off between lofty yields and additional risk. Even while their core company is struggling, companies are nevertheless trying to entice investors by paying out large dividends.
However, that isn’t necessarily the case. Yields can rise when high-quality companies’ share prices fall for short periods of time as a result of market irrationality or temporary setbacks. These chances present themselves to astute dividend investors who can secure a substantial income stream at a discounted stock price.
Below are four ultra-high-yield dividend stocks that offer compelling value right now:
- Ares Capital Corporation – Despite outperforming the market in total returns and dividend growth for multiple years running, this business development company boasts a yield higher than 9.7 percent.
- Energy Transfer LP – Despite a near-9.1% distribution yield, one of the biggest midstream energy corporations had unit growth of about 30% in 2023.
- Enterprise Products Partners – This energy infrastructure behemoth has increased its payout for 25 years running, and its unitholders get 7.5% in return.
- Rithm Capital – This diverse real estate and financial services firm is priced at little more than 6 times its anticipated earnings and offers a dividend yield of about 9.6 percent.
Keep reading to find out why these ultra-high-yield dividend stocks are such unexpected steals right now.
1. Ares Capital: A Business Development Company Offering Stellar Income
Ares Capital (ARCC: NASDAQ), with headquarters in Los Angeles, is the biggest publicly listed business development corporation (BDC) on the market. With heavy emphasis on the upper echelons of the middle market, it mainly offers financing solutions to businesses in that sector.
At present, Ares Capital is responsible for overseeing an asset portfolio worth around $395 billion. It pays out large dividends because it uses these assets to generate income and cash flow.
Ares is required by law to distribute dividends to its shareholders at a rate of 90% of its taxable income. The current 9.7 percent dividend yield is a result of this statutory requirement, which is rather enticing.
Ares Capital has also demonstrated a dedication to paying out. For more than fourteen years running, the dividend has been either kept the same or increased by the corporation.
Over the past three years, Ares Capital shares have produced market-troubling total returns, despite its enticing yield and consistent payment growth. The stock’s total return since December 2019 has been more than 12% on an annualized basis, while the S&P 500 index has been slightly over 10%.
Thanks to shares underperforming the market as a whole over the last 12 months, the stock is currently trading at a bargain price of less than 8.6 times forward earnings expectations. A price-to-book ratio of 1.04 indicates that it is also a very attractive investment.
Consider Ares Capital if you are a dividend investor looking for top-tier returns with downside protection.
2. Energy Transfer Delivers High Income at a Low Valuation
Energy Transfer LP (NYSE: ET) is a major player in the North American midstream energy infrastructure market. Nearly every significant production region in the United States is covered by its network of assets.
Energy Transfer is the proud owner and operator of about 125,000 miles of pipelines that transport natural gas and natural gas liquids. Important midstream infrastructure, including terminals, storage facilities, processing plants, and more, is also owned by it.
Due to their advantageous tax structure, numerous master limited partnerships pay out large payouts. Just like any other industry, Energy Transfer is currently seeing a yield close to 9.1 percent.
Going ahead, management also plans to increase the dividend by 3-5% per year. With its extensive energy producing footprint, the corporation sees ample room for further expansion.
In the last three years, the value of an Energy Transfer unit has nearly doubled. With the stock’s 16% gain so far in 2023, the return for the year is now over 27%.
Valuation is still not demanding, even though it has made strong advances. At the moment, the stock is selling for only 8.2 times the anticipated future profits.
All the signs point to Energy Transfer being the best option for a high-yield payout that is both expanding and supported by assets in the energy infrastructure that are hard to replace.
More Read
3. Enterprise Products Offers Impressive Income History
Enterprise Products Partners LP (NYSE: EPD), similar to Energy Transfer, owns and runs a strategically important network of midstream energy infrastructure across the US.
Natural gas storage space of fourteen billion cubic feet, 260 million barrels of storage capacity, and more than fifty thousand kilometers of pipeline are all part of its holdings. Important competitive advantages in the midstream industry come from size and scale.
In order to pay its dividends, Enterprise Products uses the consistent stream of cash it generates from its substantial asset base. For an unprecedented quarter of a century, the firm has raised its distribution each year.
During that time, Enterprise Products has increased its dividend by an average of 7% per year. In light of that growing history, income investors should take note of the stock’s 7.5% yield now.
At about 10-times forward earnings, Enterprise Products appears to be appropriately priced, while it is more expensive than certain high-yield alternatives. That multiple seems reasonable considering the company’s history.
There aren’t many better choices than Enterprise Products for investors seeking a high-yield investment with a proven track record of increasing payouts.
4. Rithm Capital: A Diversified REIT With Huge Income Potential
Rithm Capital Corp. (NYSE: RITM), formerly known as New Residential Investment Corp., is a REIT that specializes in the property and finance industries.
The business does a lot of different things, including owning and leases out single-family homes, invests in mortgage servicing rights, gives homeowners finance, does property appraisals, issues title insurance, and more.
Rithm Capital is able to consistently turn a profit because of its wide portfolio of real estate and financial services assets. Withholding dividends equal to or more than 90% of taxable income is a requirement for real estate investment trusts. Therefore, the stock’s enticing dividend yield of 9.6 percent.
The most affordable high-yield stock that has been mentioned is Rithm Capital. The stock is selling at a relatively low multiple of 6.4 times expected future earnings. An appealing valuation is also indicated by its price-to-book ratio of 0.85.
Dividend investors will find Rithm Capital to be an ideal investment due to its discounted value and ultra-high yield. As a foundational income holding, the stock is deserving of your attention.
The Bottom Line
In typical market conditions, it is not easy to find ultra-high-yield companies at cheap valuations. When going for yields in the double digits, investors usually have to take on more risk.
The alluring dividend yields of the four companies mentioned above, however, are based on acceptable valuations and solid track records. Their cheap stock prices lock in top-tier profit potential while providing a cushion for investors.
When the prices of exceptional dividend stocks decouple from their inherent worth, investors who are ready to take the risk eventually reap the enticing returns.
According to that metric, a long-term income investor can find current and future satisfaction with Ares Capital, Energy Transfer, Enterprise Products, and Rithm Capital.