It is never a good idea for investors to chase yield. Soaring dividend yields often signal a stock that has fallen hard as its business stutters and stalls. It can be an indication of deeper problems lurking underneath.
Yet not always. According to data from Wellington Management, high-yield dividend stocks are a superior investment.
The independent investment management firm found that stocks with high yields — but not the highest — tend to outperform all other classes of stocks. And it’s not just a recent phenomenon. Wellington discovered that in the 93-year period between 1930 and 2023, these ultra-high-yield dividend payers never had a losing decade.
Across two world wars, the Great Depression, numerous recessions, and major global, geopolitical upheavals, this second-tier level of stocks always generated positive returns. No other stock group could claim the same success.
Investors wanting to maximize their returns and juice their dividend income just might want to focus on these ultra-high-yield dividend plays. Below are two companies with yields 10% or higher that are worth closer consideration this month.
24/7 Wall St. Insights:
- Dividend stocks have proved to be superior investments for decades, and ultra-high-yield dividend stocks are top-tier performers.
- While chasing yield is a risky pursuit, these exceptional income-generating stocks look primed for significant growth in the new rate-easing cycle.
- Sit back and let dividends do the heavy lifting for a simple, steady path to serious wealth creation over time. Grab a free copy of “2 Legendary High-Yield Dividend Stocks“ now.
AGNC Investment (AGNC)
Real estate investment trust AGNC Investment (NYSE:AGNC) is the first ultra-high-yield dividend stock to buy. The REIT invests almost exclusively in high-yield long-term assets, typically agency mortgage-backed securities (MBS). Agencies are government-sponsored corporations like Fannie Mae, Ginnie Mae and Freddie Mac that have the full faith and credit backing of the U.S. government.
AGNC’s portfolio is massive. It totals $73.1 billion of which $68 billion is in MBS. Another $4 billion is in Treasuries while just $1 billion is in non-agency mortgages. In its recently completed third quarter, AGNC its portfolio generated very strong economic returns of 9.3%, but it is looking for the situation to markedly improve.
It borrows money at low, short-term rates and invests it in MBS assets. Because of the Federal Reserve’s unprecedented interest-rate hike policy beginning in 2021, it is understandable why AGNC stock is down 45% since then. The Fed, though, is pivoting to a rate-easing cycle, which will increase demand for high quality fixed income instruments such as the agency MBS AGNC invests in.
The REIT has paid a stable monthly dividend of $0.12 per share for 55 consecutive months. It currently yields 14.4% annually, making AGNC Investment an attractive ultra-high-yield dividend stock to buy today.
PennantPark Floating Rate Capital (PFLT)
The second such stock to buy is PennantPark Floating Rate Capital (NYSE:PFLT), a business development company (BDC) that invests in mid-tier companies. These are tomorrow’s growth companies and BDCs like PennantPark seek to get in early to maximize their returns. Its specialty, though, is in investing in the debt of the businesses, typically in the range of $5 million to $30 million.
PennantPark’s portfolio of nearly $1.7 billion consists of approximately $1.5 billion in first lien secured debt, or 88% of the total, which is exactly where it wants to be. That’s because if one of its investments goes bankrupt, PennantPark gets paid first. Yet, since its portfolio consists of 151 companies with an average investment size of only $11 million, no individual investment presents an existential risk to the BDC.
This focus on debt is also advantageous because the mid-tier businesses the BDC invests in don’t have the same sort of access to financial resources larger companies do. That means PennantPark can usually generate excess yields on its loans. The weighted average yield on its debt investments is 12.1%.
Like AGNC Investment, PennantPark Floating Rate Capital also pays a monthly dividend and the $0.1025 per share payout yields 10.1% annually. It is another ultra-high-yield dividend stock worth buying today.
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