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.

With 2024 all but over, many growth investors are looking out to 2025. As we mentioned, back-to-back years of 20% and more gains for the stock market are rare. The last time it happened was during the bull market run in the late 1990s. It makes sense to take some profit on red-hot tech stocks, especially if they have received an Artificial Intelligence boost, and look for some companies that are paying big and dependable dividends.

We screened our 24/7 Wall St. ultra-high-yield dividend stock database, looking for companies that pay big dividends but are far less risky than some of the stocks in the arena. We found five that look like outstanding ideas, and all are buy-rated at top Wall Street firms that we cover.

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 can make a significant difference.

AllianceBernstein

This top money manager and financial giant pays shareholders a rich 8.38% dividend. AllianceBernstein Holding L.P. (NYSE: AB) is a publicly owned investment manager.

The firm manages separate client-focused portfolios for its clients and primarily invests in:

• Common and preferred stocks
• Warrants and convertible securities
• Government and corporate fixed-income securities
• Commodities
• Currencies
• Real estate-related assets
• Inflation-protected securities

AllianceBernstein employs:

• Quantitative analysis
• Long-term purchases
• Short-term purchases
• Trading
• Short sales
• Margin transactions
• Option strategies, including writing covered options, uncovered options, and spread strategies to make its investments

The firm obtains external research to complement its in-house research.

Evercore ISI has an Outperform rating and a big $45 price target objective.

Altria

This tobacco company offers value investors a great entry point and a rich 7.37% dividend. Altria Group Inc. (NYSE: MO) manufactures and sells smokable and oral tobacco products in the United States through its subsidiaries.

The company provides cigarettes primarily under the Marlboro brand, as well as:

• Cigars and pipe tobacco, principally under the Black & Mild brand
• Moist smokeless tobacco and snus products under the Copenhagen, Skoal, Red Seal, and Husky brands
• on! Oral nicotine pouches
• e-vapor products under the NJOY ACE brand

It sells its tobacco products primarily to wholesalers, including distributors and large retail organizations, such as chain stores.

Altria used to own over 10% of Anheuser-Busch InBev S.A. (NYSE: BUD), the world’s largest brewer. The company sold 35 million of its 197 million shares through a global secondary offering earlier this year. That represents 18% of its holdings but still leaves a hefty 8% of the outstanding shares in its back pocket. The company also announced a $2.4 billion stock repurchase plan, partially funded by the sale.

Deutsche Bank has a Buy rating on the stock with a $60 target price.

Ares Capital

This high-yielding business development company pays a massive 9.33% 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 prefers to be an agent and lead the transactions it invests in. The fund also seeks board representation in its portfolio companies.

Truist Financial has a Buy rating with a $23 target price.

Enterprise Products Partners

This company is one of the largest publicly traded energy partnerships and pays a 6.50% dividend. Enterprise Products Partners L.P. (NYSE: EPD) provides various midstream energy services, including:

• Gathering
• Processing
• Transporting and storing natural gas, natural gas liquids (NGL) fractionation
• Import and export terminalling
• Offshore production platform services

The company has four reportable business segments:

• Natural Gas Pipelines and Services
• NGL Pipelines and Services
• Petrochemical Services
• Crude Oil Pipelines and Services

Many top Wall Street analysts may like the stock because of its distribution coverage ratio, which is well above 1x, making it relatively less risky.

Bank of America Securities has a Buy rating and a $35 target price objective.

Starwood Property Trust

This high-yielding company, run by real estate legend Barry Sternlicht, offers big-time total return potential and a 9.64% 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

JMP Securities has a Market Outperform rating with a $24 target.

Three Buy-Rated High-Yield Monthly Dividend Stocks Are Our Top January Picks

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