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 most of Wall Street focuses on large and mega-cap stocks, as they provide a degree of safety and liquidity, many investors are limited in the number of shares they can buy. Many of the most significant public companies, especially the technology giants, trade at prices up to $1,000 per share, while many are in the low to mid-hundreds. It is hard to get decent share count leverage at those steep prices.
Many investors look at lower-priced stocks to gain a higher share count and gain solid returns. That can help the decision-making process, especially when you are on to a winner, as you can always sell and keep half. We recently reviewed three stocks we love and have covered for some time, which pay solid high-yield and ultra-high-yield dividends, trade under the $20 level, and offer some of the best ideas for the second quarter. All are rated Buy at top Wall Street firms and all make sense for growth and income investors.
Why do we cover ultra-high-yield dividend stocks?
Ultra-high-yield 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.
AES
This conservative utility stock offers big upside potential. AES Corp. (NYSE: AES | AES Price Prediction) and its subsidiaries operate as a diversified power generation and utility company in the United States and internationally. Trading not far from a 52-week low, this stock has rallied during the recent sell-off.
The company owns and operates power plants to generate and sell power to customers, such as utilities, industrial users, and other intermediaries; owns and operates utilities to develop or purchase, distribute, transmit, and sell electricity to end-user customers in the residential, commercial, industrial, and governmental sectors; and generates and sells electricity on the wholesale market.
It uses various fuels and technologies to generate electricity, such as:
- Coal
- Gas
- Hydro
- Wind
- Solar
- Biomass
- Renewables comprising energy storage and landfill gas.
The company owns and operates a generation portfolio of approximately 34,596 megawatts and distributes power to 2.6 million customers.
Arbor Realty Trust
This stock trades at a ridiculous 9.5 times estimated 2025 earnings. 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.
Mach Natural Resources
This 2023 IPO is trading below the initial offering price. Mach Natural Resources L.P. (NYSE: MNR) recently conducted a secondary offering to purchase more producing assets. The company is an independent upstream oil and gas company focused on acquiring, developing, and producing oil, natural gas, and NGL reserves in the Anadarko Basin region of Western Oklahoma, Southern Kansas, and the Texas panhandle.
The company’s assets are located throughout Western Oklahoma, Southern Kansas, and the panhandle of Texas, consisting of approximately 4,600 gross-operated PDP wells.
Additionally, it owns a portfolio of midstream assets supporting its leases, including ownership in four processing plants with a combined processing capacity of 353 million cubic feet per day and 1,210 miles of gas-gathering pipelines.
Mach Natural Resources also owns water infrastructure consisting of 880 miles of gathering pipeline and 55 disposal wells.
Three Stocks Trading Under $10 That Deliver Massive Ultra-High-Yield Dividends
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