Investing in high-dividend yielding stocks typically involves elevated risks. That's because the stock price may have fallen. If this is because business prospects have worsened, the dividend is at risk.
Hence, the key is to make sure that the payment is secure. While the S&P 500 index yields 1.3%, these stocks yield over 7% and 10%, respectively.
Collecting higher dividends means that you have a chance to double your money in under a decade. That's because, under the rule of 72, you can calculate how many years it will take by simple division. Merely take 72 and divide it by the annual rate of return. Based on these stocks' yields, you should just about double your money on the dividends alone, as long as you reinvest them at the same rate.
Add in the potential for stock price appreciation, and these high-risk stocks could provide you with a nice reward in a decade.
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Altria Group
Altria Group (MO 0.70%) is best known for selling cigarettes, such as the Marlboro brand, although it also has other products like cigars and oral tobacco products.
While overall cigarette sales have been in decline for years, Altria is moving beyond that business. This includes buying 10% of Anheuser-Busch InBev (NYSE: BUD) and a 35% interest in JUUL, a maker of e-vapor products. The company also owns 45% of marijuana producer Cronos.
Granted, these initiatives could take a while to pan out. But in the meantime, investors will receive a 7.1% dividend yield.
The board of directors is committed to the payments, too. With June's nearly 5% increase to $0.90 a quarter, that brought Altria's streak to 52 years of raising its payout. This makes the company a Dividend King. Over the long term, the board's target payout ratio is 80%.
Altria has the cash flow to back this up. Generating about $8 billion in operating cash flow annually, including $8.4 billion last year, and with a modest $230 million of capital expenditures, this leaves plenty of free cash flow to fund the $6.3 billion in dividends.
Annaly Capital Management
Annaly Capital Management (NLY 1.69%) is a real estate investment trust (REIT). REITs own or finance various property types. Established by law more than 60 years ago, there are certain requirements companies have to meet to qualify, including that it must pay out at least 90% of its taxable income as dividends.This makes it ideally suited for income-seeking investors.
Instead of buying properties, Annaly mostly purchases mortgage-backed securities. The majority of these are agency MBS, meaning they are backed by the full faith and credit of the U.S. federal government in case the loans default. Looking at its $69 billion securities portfolio at the end of the second quarter, $66.5 billion were agency MBS.
To purchase these assets, Annaly borrows money at short-term rates to buy these longer-term securities. With the Federal Reserve taking an accommodating stance, short-term interest rates have been at ultra-low levels. The company can take advantage of this spread and profit nicely.
The spreads may narrow, but as long as longer-term Treasury securities pay a higher yield than those with a shorter term, which is typical, Annaly can operate profitably. For the first six months of the year, its net interest income was over $1 billion, more than double the year-ago figure.
Annaly's stock yields a high 10.3%. The company has cut its dividend twice since 2019. However, it has paid the same quarterly rate since mid-2020. Plus, there is comfort in the fact that it has been around since 1997 and survived all kinds of economic environments.
If you want to double your money in less than a decade, you'll need to earn more than 7% per year. That's no easy feat, but these two stocks, with their high dividend yields and potential stock price appreciation, offer that possibility.
