Dividend stocks are a great way to mitigate downside risk, hedge against inflation, and generate reliable levels of passive income. Stocks with yields of greater than 7%, however, tend to be more trouble than they are worth. The long and short of it is that sky-high yields tend to be a byproduct of a declining share price in response to falling earnings, a high debt load, and/or an emerging competitive threat.
There are some clear exceptions to this general rule of thumb, however. Closed-end funds, real estate investment trusts (REITs), and some actively managed diversified holding companies are purpose-built to return an outsize portion of cash flows to shareholders via regular distributions. What's more, these types of dividend plays frequently offer annualized yields in excess of 7%.
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Here are three ultra-high-yield dividend equities poised to deliver solid returns for investors in 2023 and beyond.
1. Arbor Realty Trust
Arbor Realty Trust (ABR 3.45%) is a REIT with a current annualized yield of 10.75%. Apart from its enormous yield, Arbor is also noteworthy because it has raised its dividend for 10 consecutive quarters at the time of this writing.
Although the REIT largely specializes in low-risk multifamily units, it also earns revenue through loan origination fees, loan servicing fees, single-family rentals, and commercial real estate. Arbor thus sports a highly diversified revenue stream capable of generating stable levels of income through every type of business cycle.
Why is this REIT worth buying in an uncertain economic climate? Arbor's shares had a rare down period in 2022, falling by 28% in value last year. However, Arbor's stock has come storming back in early 2023 (up 15% year to date) in response to an improving macroeconomic landscape, its strong balance sheet, and its promising long-term outlook. Income investors, therefore, shouldn't hesitate to add this top-notch REIT to their portfolio this year.
2. Icahn Enterprises
Icahn Enterprises (IEP 1.98%) is a master limited partnership with significant stakes across seven core business segments: investment, energy, automotive, food packaging, real estate, home fashion, and pharma. The company is named after its founder and largest shareholder, Carl Icahn. Icahn is a well-known activist investor. By taking an outsize position in a company, Icahn and his management team aim to change the way a business operates to maximize shareholder value.
At present, Icahn Enterprises offers investors a sky-high annualized yield of 14.91%. The company's enormous yield is the core reason its shares have consistently trounced the broader market over the past 22 years.
IEP Total Return Level data by YCharts
Although there is no sure thing when it comes to stock investing, Icahn Enterprises has doled out 70 straight quarterly distributions to shareholders. There simply aren't many income vehicles that offer a double-digit yield and 17-plus years of consistent payouts. Icahn Enterprises stock, in turn, ought to appeal to investors on the hunt for a dependable source of better-than-average passive income.
3. Medical Properties Trust
Medical Properties Trust (MPW 2.65%) is a healthcare REIT with an annualized yield of 8.88%. At present, this healthcare REIT has raised its dividend for eight straight years.
The company offers leasing and financing services for healthcare facilities in 10 countries. Medical Properties Trust currently leases 434 healthcare facilities across the globe, including acute care hospitals, behavioral health facilities, and inpatient rehabilitation hospitals, among others. This healthcare REIT is thus very diversified from both a geographic and facility-type standpoint.
What's the investing thesis? Medical Properties Trust is essentially a pure-play income vehicle. The company's top line is stagnant at the moment, but the nature of its business provides reliable sources of income. Not many hospitals default on their rent payments, after all. That being said, this rare risk factor did become an issue last year when one of its tenants -- Pipeline Health -- went through bankruptcy proceedings. Nonetheless, hospitals do tend to be stable, long-term tenants as a whole.
Medical Properties Trust, in turn, is a worth owning if you're looking for a healthy source of passive income.
