Investors love dividend stocks, especially the 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.
After two years of 20% gains, the first time since the late 1990s, the stock market is likely to take a breather this year. The S&P 500’s price-to-earnings (P/E) ratio is currently at a whopping 27.87. That is up from 27.45 in the previous quarter and 24.59 a year ago. This is way above the historical average of the modern era of 20.4 times earnings.
We screened our 24/7 Wall Street high-yield stock database looking for companies paying 7% and higher dividends and found four stocks that growth and income investors should add to their portfolios. All are rated Buy at the top Wall Street firms we cover and are poised for a solid 2025.
Why do we cover high-yield dividend stocks?
Dividend stocks provide investors with reliable streams of passive income. Passive income is characterized by its ability to generate revenue without requiring the earner’s continuous active effort, making it a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
Altria
One of the world’s largest producers and marketers of cigarettes and other tobacco-related products.
This tobacco company offers value investors a great entry point and a rich 7.07% dividend. Altria Group Inc. (NYSE: MO | MO Price Prediction) 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.
Ares Capital
Ares Capital specializes in financing solutions for the middle market.
This high-yielding business development company (BDC) pays a massive 8.67% 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
Hess Midstream
A fee-based, growth-oriented midstream company that owns operates, and develops diverse midstream assets.
This is the limited partnership midstream arm of one of the country’s top energy companies, Hess Corp. (NYSE: HES), which owns 38% of the company and pays a stellar 7.23% dividend. Hess Midstream L.P. (NYSE: HESM) owns, develops, operates, and acquires midstream assets.
The company operates through three segments:
- Gathering
- Processing and Storage
- Terminating and exporting
The Gathering segment owns natural gas and crude oil gathering systems and produces water gathering and disposal facilities. Its gathering system consists of approximately 1,350 miles of high- and low-pressure natural gas and natural gas liquids gathering pipelines with a capacity of about 450 million cubic feet per day, and the crude oil gathering system comprises approximately 550 miles of crude oil gathering pipelines.
The Processing and Storage segment includes:
- Tioga Gas Plant, a natural gas processing and fractionation plant located in Tioga, North Dakota
- 50% interest in the Little Missouri four gas processing plant located south of the Missouri River in McKenzie County, North Dakota
- Mentor Storage Terminal, a propane storage cavern, and rail and truck loading and unloading facility located in Mentor, Minnesota
The Terminaling and Export segment owns the Ramberg terminal facility, Tioga rail terminal, crude oil rail cars, and Johnson’s Corner Header.
MPLX
A diversified, large-cap master limited partnership formed by Marathon Petroleum.
This company is one of the top holdings in the Alerian MLP energy exchange-traded fund and pays a healthy 7.41% dividend. MPLX LP. (NYSE: MPLX) is primarily engaged in transporting crude oil and refined products and terminating in the U.S. Midwest and Gulf Coast regions and natural gas gathering and processing in the northeast from its prior acquisition of MarkWest Energy in 2015. Independent U.S. refiner Marathon Petroleum Corp. (NYSE: MPC) formed MPLX.
The company’s assets include:
- Network of crude oil and refined product pipelines
- Inland marine business
- Light-product terminals
- Storage caverns
- Refinery tanks
- Docks
- Loading racks and associated piping
- Crude and light-product marine terminals
MPLX also owns:
- Crude oil and natural gas gathering systems
- Pipelines, natural gas, and NGL processing and fractionation facilities in key U.S. supply basins
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