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.
While the Federal Reserve may be ready to pause interest rate cuts for a while, investors must realize that federal funds have already fallen by a whole percentage point and will likely fall further as 2025 progresses. While better suited for those with higher risk tolerance, ultra-high-yield stocks will be in significant demand as yields on money markets and CDs field to the fund rate decline and yields on corporate and high-yield junk bonds drop.
We screened our 24/7 Wall Street ultra-high-yield dividend research database, looking for solid stocks trading under the $15 level that investors can buy now and realize some serious passive income and potential total return home runs. All four have Buy ratings at top Wall Street firms.
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.
Arbor Realty Trust
Arbor Realty Trust offers nationwide solutions for multifamily finance.
This company trades at a ridiculous 9.2 times estimated 2025 earnings and pays a massive 11.94% 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 the 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.
Raymond James has an Outperform rating with a $15 target price.
Ellington Financial
Ellington has been at the forefront of data-driven investing since its founding in 1994.
This quality mortgage REIT company is a favorite across Wall Street and pays a massive 13.45% dividend. Ellington Financial Inc. (NYSE: EFC) 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. The company offers consumer loans and asset-backed securities backed by consumer and commercial assets.
BTIG Research has a Buy rating with a $15.50 target price objective.
PennantPark Floating Rate
The company invests in middle-market companies in the United States.
Almost ignored by Wall Street, this is another business development company with a massive 11.16% dividend. PennantPark Floating Rate Capital Ltd. (NYSE: PFLT) seeks to invest through floating rate loans in private, thinly traded, or small market-cap, public middle-market companies.
It primarily invests in the United States and, to a limited extent, non-U.S. companies. The fund typically invests between $2 million and $20 million. The fund also invests in:
- Equity securities
- Preferred stock
- Common stock
- Warrants or options received in connection with debt investments or through direct investments
It primarily invests between $10 million and $50 million in senior secured loans and mezzanine debt. It seeks to invest in companies not rated by national rating agencies.
The fund invests 30% in non-qualifying assets like:
- Investments in public companies whose securities are not thinly traded or do not have a market capitalization of less than $250 million
- Securities of middle-market companies located outside of the United States
- High-yield bonds
- Distressed debt
- Private Equity
- Securities of public companies that are not thinly traded
- Investment companies as defined in the 1940 Act
Under normal conditions, the fund expects at least 80 percent of its net assets plus any borrowings for investment purposes to be invested in floating-rate loans and investments with similar economic characteristics, including cash equivalents invested in money market funds. It expects to represent 65 percent of its portfolio through senior secured loans.
Maxim Group has a Buy rating to go with a $12 price target.
Runway Growth Finance
Runway Growth Finance seeks to be the leading non-bank lender to late/growth stage venture companies.
This business development company (BDC) pays a stunning 15.18% dividend and has a solid Wall Street following. Runway Growth Finance Corp. (NASDAQ: RWAY) is a BDC specializing in investments in senior secured loans to late-stage and growth companies.
It prefers to invest in companies engaged in:
- Technology
- Life sciences
- Healthcare
- Information services
- Business services
- Select consumer services and products sectors
Runway Growth Finance prefers investments in companies engaged in:
- Electronic equipment and instruments
- Systems software
- Hardware, storage, and peripherals
- Specialized consumer services
- Application software
- Healthcare technology
- Internet software and services
- Data processing and outsourced services
- Internet retail, human resources, and employment services
- Biotechnology, health care equipment, and education services
It invests between $10 million and $75 million in senior secured loans.
Compass Point has a Buy rating with a $12.75 target.
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