Investors love dividend stocks, especially the ultra-yield variety because they offer a significant income stream and massive total return potential. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation.

Let’s take a closer look at the concept of total return. Imagine you purchase a stock at $20 that offers a 3% dividend. If the stock price rises to $22 within a year, your total return is 13%. This is calculated by adding the 10% increase in stock price to the 3% dividend. Understanding this calculation is key to making informed investment decisions.

We decided to go to the edge of the dividend universe and search for the stocks that pay a stunning 13% or more dividend. Five companies that are better suited for income investors with a higher risk tolerance hit our screens, and all make sense for those trying to generate big passive income streams.

Why are we covering these stocks?

Despite the rise in interest rates over the last two years, we are still seeing persistent “sticky” inflation on many everyday items that we all have to purchase. Those looking to enhance their earnings with passive income can benefit from stocks that pay ultra-yield dividends. Plus, two of these stocks pay investors monthly.

AGNC Investment

This company has paid solid monthly dividends for years; its current yield is 15.32%. AGNC Investment Corp. (NASDAQ: AGNC) is a real estate investment trust (REIT) in the United States.

The company invests in residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by the United States government-sponsored enterprise or by the United States government agency.

The company funds its investments primarily through collateralized borrowings structured as repurchase agreements. It has elected to be taxed as a REIT under the Internal Revenue Code 1986. However, it would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders.

Arbor Realty Trust

This company trades at a ridiculous 7.7 times estimated 2024 earnings and pays a massive 13.43% dividend. Arbor Realty Trust (NYSE: ABR) invests in a diversified portfolio of structured finance assets in the multifamily, single-family rental, and commercial real estate markets in the United States.

The company operates in two segments:

• Structured Business 
• Agency Business.

Arbor Realty Trust primarily invests in:

• Bridge and mezzanine loans, including junior participating interests in first mortgages
• Preferred and direct equity and real estate-related joint ventures
• Real estate-related notes
• Various mortgage-related securities

The company offers:

• Bridge financing products to borrowers who seek short-term capital to be used in an acquisition of property
• Financing by making preferred equity investments in entities that directly or indirectly own real property
• Mezzanine financing in the form of loans that are subordinate to a conventional first mortgage loan and senior to the borrower’s equity in a transaction
• Junior participation financing in the form of a junior participating interest in the senior debt 
• Financing products to borrowers seeking conventional, workforce, and affordable single-family housing

Further, it underwrites, originates, sells, and services multifamily mortgage loans through conduit/commercial mortgage-backed securities programs.

Ellington Financial

This is a quality mortgage REIT company that is a favorite across Wall Street and pays a massive 13.32% dividend monthly. Ellington Financial Inc. (NYSE: EFC), through its subsidiary, Ellington Financial Operating Partnership LLC, acquires and manages mortgage-related, consumer-related, corporate-related, and other financial assets in the United States. 

The company develops and manages residential mortgage-backed securities (RMBS) backed by:

• Prime jumbo
• Alt-A, manufactured housing, and subprime residential mortgage loans
• RMBS for which the principal and interest payments are guaranteed by the U.S. government agency or the U.S. government-sponsored entity
• Residential mortgage loans
• Commercial mortgage-backed securities
• Commercial mortgage loans and other commercial real estate debt

Ellington Financial also provides collateralized loan obligations; mortgage-related and non-mortgage-related derivatives; corporate debt and equity securities; corporate loans; and other strategic investments. In addition, the company offers consumer loans and asset-backed securities backed by consumer and commercial assets.

FS KKR

This is a well-known name on Wall Street, offers a solid entry point at current levels, and pays a massive 14.49 dividend. FS KKR Capital Corp. (NASDAQ: FSK) is a business development company specializing in investments in debt securities. It seeks to purchase interests in loans through secondary market transactions or directly from the target companies as primary market investments.

The company also seeks to invest in:

• First-lien senior secured loans
• Second-lien secured loans
• Subordinated loans 
• Mezzanine loans

The firm also receives equity interests in connection with debt investments, such as warrants or options for additional consideration. It also seeks to purchase minority interests in common or preferred equity in our target companies, either in conjunction with one of the debt investments or through a co-investment with a financial sponsor.

The fund may invest in corporate bonds and similar debt securities opportunistically.

The fund does not seek to invest in start-ups, turnaround situations, or companies with speculative business plans. It aims to invest in small and middle-market companies in the United States.

FS KKR seeks to invest in firms with annual revenue between $10 million to $2.5 billion. It aims to exit from securities by selling them in a privately negotiated over-the-counter market.

Prospect Capital

Hedge Funds love this top Business development company, and the gigantic 13.74% dividend makes it a potential total return home run. Prospect Capital Corporation (NASDAQ: PSEC) specializes in the middle market, mature, mezzanine finance, later stage, emerging growth, leveraged buyouts, refinancing, acquisitions, recapitalizations, turnaround, growth capital, development, capital expenditures and subordinated debt tranches of collateralized loan obligations, cash flow term loans, market place lending, and bridge transactions.

It also invests in the multi-family residential real estate asset class. The fund makes secured debt, senior debt, senior and secured term loans, unitranche debt, first-lien and second-lien, private debt, private equity, mezzanine debt, and equity investments in private and microcap public businesses.

Prospect Capital focuses on both primary origination and secondary loans/portfolios and invests in situations such as debt financing for private equity sponsors, acquisitions, dividend recapitalizations, growth financings, bridge loans, cash flow term loans, and real estate financings/investments.

The company invests in the follwing sectors and business silos:

• Aerospace and defense
• Chemicals
• Conglomerate and consumer services
• Ecological
• Electronics
• Financial services
• Machinery and manufacturing
• Media
• Pharmaceuticals
• Retail
• Software
• Specialty minerals
• Textiles and leather
• Transportation,
• Oil gas and coal production

In addition to favoring materials, industrials, consumer discretionary, information technology, utilities, pipeline, storage, power generation and distribution, renewable and clean energy, oilfield services, healthcare, food and beverage, education, business services, and other select sect

 

 

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