Income investors don’t have to settle for puny dividends. There are far too many stocks that offer extraordinary yields of 6% or more — a level that I’d categorize as ultra-high.
Granted, some of those stocks are too risky for many investors. But not all of them are problematic. Here are my four favorite ultra-high-yield dividend stocks to buy for 2024 (listed in alphabetical order).
1. Ares Capital
Ares Capital (NASDAQ: ARCC) ranks as the largest publicly traded business development company (BDC). To be exempt from paying federal taxes, BDCs must return at least 90% of their income to shareholders in the form of dividends. Ares Capital has generated a lot of earnings to return in this manner: Its dividend yield currently tops 9.8%.
Can Ares Capital sustain its dividend at such an ultra-high level? I think so. The company continues to generate strong earnings. It also has a great track record of 14+ years of stable to increasing dividends.
What I especially like about Ares Capital is that it has consistently delivered higher total returns than the S&P 500 over the long term. Middle-market companies’ need for capital combined with Ares Capital’s solid risk-management process should enable this stock to keep up its winning ways in the future.
2. Energy Transfer LP
Energy Transfer‘s (NYSE: ET) corporate tag line is “moving America’s energy.” That’s exactly what the company does with its nearly 125,000 miles of pipeline. The limited partnership also moves quite a bit of money to its partners via quarterly distributions. Energy Transfer’s distribution yield is over 9.1%.
Those distributions should continue to flow and grow. Energy Transfer expects to increase its distribution by between 3% and 5% per year. The midstream energy leader is generating more than enough cash flow to fund the distributions.
I’m not overly concerned that Energy Transfer’s solid gains this year will prevent it from keeping the momentum going in the new year. The U.S. economy appears to be in good shape heading into 2024. Energy Transfer’s valuation also remains attractive with a forward price-to-earnings ratio of under 8.3.
3. Enterprise Products Partners
I also really like another midstream energy stock — Enterprise Products Partners (NYSE: EPD). The company operates over 50,000 miles of pipelines that transport crude oil, natural gas, natural gas liquids, petrochemicals, and other refined products.
Enterprise’s distribution yield currently stands just shy of 7.7%. What’s really impressive, though, is that the company has increased its distribution for 25 consecutive years with a compound annual growth rate of 7%.
An additional big plus for Enterprise Products Partners is its consistency. The company has generated double-digit returns on invested capital (ROIC) and strong cash flow per unit during both boom and bust periods.
4. Verizon Communications
Verizon Communications (NYSE: VZ) is no doubt the best-known of these dividend stocks. It’s a leader in the telecommunications industry with operations around the world. Verizon has also been a stock that income investors have loved for years. With the company’s dividend yield of over 7.1%, income investors still love Verizon.
There are two main reasons why I included Verizon on the list of my four favorite ultra-high-yield dividend stocks. One is its track record of dividend increases. In September, Verizon announced its 17th consecutive year of dividend hikes.
The second is that the company’s free cash flow continues to grow robustly, which should ensure those dividend increases keep coming. Just as important, this trend shows that Verizon can successfully navigate a challenging telecom market. I think this is an ultra-high-yield dividend stock that’s built for the long term.
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Keith Speights has positions in Ares Capital and Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners and Verizon Communications. The Motley Fool has a disclosure policy.
My 4 Favorite Ultra-High-Yield Dividend Stocks to Buy for 2024 was originally published by The Motley Fool
