Whether or not investors realize it, they've been witnessing history for the past 20 months. First, they watched the benchmark S&P 500 navigate its way to the fastest decline of at least 30% in its storied history. This was followed up by the strongest bounce-back rally on record. It took less than 17 months for the index to double from its pandemic low.
While volatility is always present, so is the opportunity to buy into great companies at a perceived discount. If you're investing with a long-term mindset, bargains can always be found.
Interestingly, some of the best deals available at the moment happen to be ultra-high-yield dividend stocks (i.e., companies with yields at or above 7%). Since dividend-paying companies are often profitable and time-tested, they're a smart addition to an investor's portfolio.
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Best of all, you don't need a boatload of cash to begin generating income or building wealth with dividend stocks. If you have $100 ready to invest, which won't be needed to cover bills or emergencies, the following ultra-high-yield stocks are some of the smartest buys right now.
Enterprise Products Partners: 7.94% yield
Last year, crude oil saw a record demand drawdown, which has made income investors leery of putting their money to work in oil stocks. However, dividend seekers won't have those concerns with master limited partnership Enterprise Products Partners (EPD 0.09%).
Upstream oil companies, like drillers, feel a direct pinch when crude oil or natural gas prices decline. Enterprise Products Partners is a midstream provider. It operates approximately 50,000 miles of pipeline, has 14 billion cubic feet of natural gas storage capacity, and controls 19 natural gas processing facilities.
Because of the way Enterprise Products structures its transmission and storage contracts, it doesn't feel the same pinch when oil and natural gas prices vacillate. In fact, with the company enjoying such transparent cash flow, it's able to outlay capital for new infrastructure projects without compromising its payout or profitability.
The company's distribution-coverage ratio -- the amount of distributable cash flow relative to the amount of distributed cash paid to shareholders -- offers further evidence that it's well insulated from crude and natural gas price swings. During the depths of the initial wave of the coronavirus pandemic, Enterprise Products Partners never saw its distribution-coverage ratio drop below 1.6. Anything below 1 or near 1 would have been concerning.
With the price of crude oil and natural gas now soaring as global demand picks up and supply remains relatively tight, the expectation is for drillers to expand production in 2022 and beyond. This bodes well for Enterprise Products Partners, which has regularly outlaid capital to expand its transmission, storage, and refining capacity.
Even though the S&P 500 is knocking on new highs, Enterprise Products Partners and its nearly 8% yield remain a bargain in the energy sector.
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Mobile TeleSystems: 10.97% yield
Another smart ultra-high-yield dividend stock income investors can buy right now with $100 is Russian telecom-giant Mobile TeleSystems (MBT), which is also known as MTS. Take note that, while MTS is effectively paying out an 11% trailing-12-month yield, its two annual payouts aren't set. Nevertheless, the company has averaged around a 10% yield over the past six years.
The bread-and-butter cash flow driver for MTS continues to be its wireless business. Beginning this year and continuing for the next couple of years, it should benefit immensely from the rollout of 5G wireless infrastructure.
It's been a decade since substantial improvements were made to wireless download speeds, meaning there's a good likelihood MTS will see increased data consumption and wireless-device upgrades extend for years. As a reminder, data is the predominant driver of Mobile TeleSystems' wireless margins.
However, MTS isn't just sitting back and allowing this generally slower-growing segment do all the work. It's launched a number of new revenue channels that offer sustainable double-digit growth and could significantly boost add-on sales.
For example, the company saw the number of streaming-television users catapult from 1.2 million in the June-ended quarter of 2020 to 3.2 million a year later. Including more traditional paid TV options, MTS now has 7.4 million active users, up 52% year over year.
Beyond streaming, MTS delivered 48% sales growth in cloud and digital-solutions revenue, and saw the gross loans issued by MTS Bank jump by 49% from the prior-year period. All told, these new channels delivered 27% sales growth in Q2 2021.
Between the predictability of cash flow from its wireless segment and the high-margin organic growth potential of these non-core channels, Mobile TeleSystems is cheap (about nine times estimated forward-year earnings) and one heck of a dividend superstar.
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Annaly Capital Management: 10.4% yield
Lastly, there's my favorite ultra-high-yield dividend stock and a company that can help investors crush inflation: Annaly Capital Management (NLY 1.79%). Annaly has averaged about a 10% yield over the past two decades and has paid out more than $20 billion in dividends since its inception in 1997.
Annaly Capital Management is a mortgage real estate investment trust (REIT). In simple terms, mortgage REITs are companies that borrow money at low short-term rates and use this capital to acquire higher-yielding long-term assets, such as mortgage-backed securities (MBS). Annaly intently watches interest rates and is looking to maximize the difference (known as net interest margin) between the average yield received from its MBS and the average yield of its borrowing rate.
What's notable is that the early stages of an economic recovery favor mortgage REITs. Virtually all recoveries from a recession dating back decades have featured a steepening of the yield curve -- i.e., a widening gap between long-term and short-term Treasury yields. When Treasury bond yields widen, it's typical for Annaly to nab higher yields on the MBS it purchases, which ultimately lifts its net interest margin.
Another key reason Annaly can be so successful is the company's reliance on agency assets. An agency security is backed by the federal government in the event of a default. Although this added protection lowers the yield Annaly nets from its MBS relative to non-agency assets, it also allows the company to utilize leverage to increase its profit potential.
With mortgage REITs entering the sweet spot of their growth phase and Annaly cranking out a double-digit yield, now's the perfect time for income investors to pounce on this smart ultra-high-yield stock.
