Investing

4 Magnificent Ultra-High-Yield Dividend Stocks Investors Can Hold for Decades

Lee Jackson

Published: November 22, 2024 7:41 am

24/7 Wall St. Insights

• The lower interest rates go, the more investors will shift to ultra-high-yield stocks.
• Expect the federal funds rate to be 3.25% by 2026.
• Ultra-high-yield stocks may not be suitable for everybody, but a qualified financial advisor can let you know if you are a candidate to own them. Click here to find out if you are.

Investors love dividend stocks, especially the ultra-high-yield variety, because they offer a significant income stream and have 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.

Most analysts and economists on Wall Street feel that after the first big rate cut of 50 basis points, or half of 1%, investors can expect another 50 basis points in 2024, with 25 coming in November and December. They also predict another 100 basis points next year and a final 25 basis point cut in 2026. This should get the federal funds rate to the 3.00% to 3.25% level.

One thing is for sure: as interest rates drop, so will yields on certificates of deposit, high-yield money market funds, bonds, and other passive income investments. We screened our 24/7 ultra-high-yield dividend stock research database and found four outstanding companies investors can buy and hold for decades to generate dependable passive income.

Why do we cover ultra-high-yield stocks?

While only suited for some, those who are trying to build strong passive income streams can do extremely well having some of these top companies in their portfolios. Paired with more conservative blue-chip dividend giants, investors can use a barbell approach to get passive income streams that make a significant difference.

Alliance Resource Partners

This leader in the thermal coal business offers solid diversity and a massive 11.43% yield. Alliance Resource Partners L.P. (NASDAQ: ARLP) is a diversified natural resource company that produces and markets coal primarily to utilities and industrial users in the United States.

The company operates through four segments:

• Illinois Basin Coal Operations
• Appalachia Coal Operations
• Oil & Gas Royalties
• Coal Royalties

It produces a range of thermal and metallurgical coal with sulfur and heat contents.

The company operates seven underground mining complexes in:

• Illinois
• Indiana
• Kentucky
• Maryland
• Pennsylvania
• West Virginia

In addition, it leases land and operates a coal loading terminal on the Ohio River at Mt. Vernon, Indiana, buys and resells coal, and owns mineral and royalty interests in approximately 1.5 million gross acres of oil and gas-producing regions, primarily in the Permian, Anadarko, and Williston Basins.

Further, the company offers various mining technology products and services, including:

• Data networks
• Communication and tracking systems
• Mining proximity detection systems
• Industrial collision avoidance systems
• Data and analytics software

Ares Capital

The business development company specializes in financing solutions for the middle market.

This high-yielding business development company (BDC) pays a massive 9.37% dividend. Ares Capital Corp. (NASDAQ: ARCC) specializes in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle-market companies.

It also makes growth capital and general refinancing. It prefers to invest in companies engaged in basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors.

The fund will also consider investments in industries such as:

• Restaurants
• Retail
• Oil and gas
• Technology sectors

The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million.

The fund invests through:

• Revolvers
• First-lien loans
• Warrants
• Unitranche structures
• Second-lien loans
• Mezzanine debt
• Private high yield
• Junior Capital
• Subordinated debt
• Non-control preferred and common equity.

The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically finds the purchase of stressed and discounted debt positions.

Ares Capital Corporation prefers to be an agent and lead the transactions it invests in. The fund also seeks board representation in its portfolio companies.

FS KKR

This is another well-known name on Wall Street. It offers a solid entry point at current levels and pays a massive 14.48 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. It 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 and $2.5 billion. It aims to exit from securities by selling them in a privately negotiated over-the-counter market.

Starwood Property Trust

This high-yielding company, run by real estate legend Barry Sternlicht, offers big-time total return potential and a 9.37% dividend. Starwood Property Trust Inc. (NYSE: STWD) operates as a real estate investment trust (REIT) in the United States, Europe, and Australia.

It operates through four segments:

• Commercial and Residential Lending
• Infrastructure Lending
• Property
• Investing and Servicing segments

The Commercial and Residential Lending segment:

• Originates, acquires, finances, and manages commercial first mortgages
• Non-agency residential mortgages
• Subordinated mortgages
• Mezzanine loans
• Preferred Equity
• Commercial mortgage-backed securities (CMBS)
• Residential mortgage-backed securities

The Infrastructure lending segment originates, acquires, finances, and manages infrastructure debt investments.

The Property segment primarily develops and manages equity interests in stabilized commercial real estate properties, such as multifamily properties and commercial properties subject to net leases, that are held for investment.

The Investing and Servicing segment:

• Manages and works out problem assets
• Acquires and contains unrated, investment grade, and non-investment grade rated CMBS comprising subordinated interests of securitization and re-securitization transactions
• Originates conduit loans to sell these loans into securitization transactions and acquire commercial real estate assets, including properties from CMBS trusts

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