For the past 14 months, both everyday and professional investors have been navigating a challenging environment on Wall Street. Last year, all three major U.S. stock indexes delivered their worst performances since 2008.

But when things become challenging on Wall Street, smart investors usually turn to dividend stocks. Companies that pay a regular dividend to their shareholders are often profitable, time-tested, and have transparent long-term growth outlooks. It also doesn't hurt that dividend stocks have historically outperformed publicly traded companies that don't offer a dividend by a significant margin over the long run.

A professional money manager using a stylus and smartphone to analyze a stock chart displayed on a computer monitor.

Image source: Getty Images.

With uncertainty still ruling the roost on Wall Street, it should come as no surprise that the latest round of 13F filings with the Securities and Exchange Commission showed high-profile money managers gravitating to income stocks. A 13F allows investors an under-the-hood look at what money managers with at least $100 million in assets under management bought and sold in the most recent quarter.

In particular, income stocks with supercharged yields were especially popular among billionaire investors. What follows are three ultra-high-yield dividend stocks -- a term I use to describe companies with yields of 7% and above -- billionaires simply can't stop buying.

AGNC Investment: 12.64% yield

The first high-octane income stock that billionaire money managers favored during the fourth quarter is mortgage real estate investment trust (REIT) AGNC Investment (AGNC -0.81%). During the quarter, billionaire Israel Englander of Millennium Management added more than 3 million shares of AGNC, while Ken Griffin's Citadel Advisors scooped up almost 637,000 shares to increase its position to roughly 4.85 million shares.

Aside from the fact that AGNC has yielded 10% or higher in 13 of the past 14 years, the lure of mortgage REITs tends to be the predictability of their operating models. These are businesses that are dependent on interest rates and monetary policy. Keeping tabs on the Federal Reserve's stance on the U.S. economy and rates generally removes any surprises from the equation.

In 2022, virtually nothing went right for AGNC Investment or its peers. Historically high inflation coerced the nation's central bank to be aggressive with interest rate hikes. This, in turn, increased short-term borrowing costs for mortgage REITs and reduced their net interest margin -- the difference between the average yield of the assets they own minus their average borrowing rate.

The good news for AGNC Investment, and potentially the reason billionaire fund managers have been buying in, is the likelihood of improved operating results this year and moving forward. For instance, even though higher interest rates have increased short-term borrowing costs, they'll also provide higher yields on the mortgage-backed securities (MBS) AGNC is purchasing. Likewise, it's reducing prepayment speed, which can help widen the company's net interest margin over time. 

What's more, just $2.3 billion of AGNC's $82 billion investment portfolio was tied up in nonagency assets and credit-risk transfers as of the end of 2022. With the bulk of its portfolio invested in agency securities, which are backed by the federal government in the event of default, AGNC is free to utilize leverage to increase its profit potential.

Alliance Resource Partners: 13.08% yield

A second ultra-high-yield dividend stock billionaires can't stop buying is coal producer Alliance Resource Partners (ARLP -1.01%). Following multiple dividend hikes in 2022, Alliance Resource is one of the highest-yielding public companies at nearly 13.1%.

Based on 13F filings for the fourth quarter, two prominent billionaire fund managers lifted their stakes in Alliance Resource Partners. This includes the aforementioned Ken Griffin, with Citadel effectively tripling its stake with a 225,803-share purchase, as well as Jeff Yass's Susquehanna International, which added 213,321 shares.

For more than a decade, all we've been hearing about is the future of solar, wind, and hydrogen power, and how these renewable energy sources were going to put the coal industry out of business. Then the COVID-19 pandemic occurred and turned this thesis on its head. After years of reduced capital investment from global energy majors, coupled with Russia's invasion of Ukraine, it's the coal industry that's stepping in and providing much-needed supply. Alliance Resource Partners recognized a 50% jump in year-over-year coal sales price per ton during the fourth quarter.

In addition to higher price points, the company is benefiting immensely from its forward-looking operating model. This year, 34.7 million tons of coal (94% of expected production at the midpoint) is already priced and committed. Likewise, 23.7 million tons is committed and priced for 2024. Booking production up to three years out at highly favorable prices is a smart move by management that ensures highly predictable cash flow and minimizes the impacts of inflation and coal spot-price movements.

Another likely reason Alliance Resource Partners has been such a popular stock among billionaire investors is its oil and natural gas royalty portfolio. In an effort to diversify its operations, the company has acquired oil and gas interests. The gist here is that if the spot price of oil and/or natural gas rises, segment earnings before interest, taxes, depreciation, and amortization (EBITDA) will rise, too.

At less than 4 times forecast earnings in 2023 and 2024, Alliance Resource Partners is one of the cheapest stocks on Wall Street.

A small pyramid of tobacco cigarettes set atop a thin layer of dried tobacco.

Image source: Getty Images.

Altria Group: 7.82% yield

The third ultra-high-yield dividend stock billionaires can't stop buying is, arguably, the most prominent company on this list: tobacco stock Altria Group (MO -1.00%). Billionaire Jeff Yass of Susquehanna nearly quadrupled his fund's stake in Altria, with a 732,029-share purchase during the fourth quarter.

The biggest knock against tobacco stocks is they're no longer a growth story. As the public has become aware of the negative health effects of smoking, adult cigarette smoking rates have plunged in the United States. Between 1964 and 2020, the adult smoking rate in this country has fallen from 42% to 12.5%, per the Centers for Disease Control and Prevention. 

On the other hand, the nicotine found in tobacco products is an addictive chemical. Adults who do continue to smoke treat tobacco products as nondiscretionary items, regardless of the inflation rate or how well or poorly the U.S. economy is performing. In other words, Altria has exceptional pricing power with its tobacco products and is often able to outpace cigarette volume declines with price increases on its premium Marlboro brand.

However, Altria's management team is well aware that its future lies with alternative consumption products. Although its investment in once-popular vape company Juul didn't pan out, Altria continues to look for ways to expand its product line beyond tobacco cigarettes. One such venture includes its $1.8 billion equity investment in Canadian licensed cannabis producer Cronos Group. If the U.S. federal government were to legalize marijuana, Altria would undoubtedly play a key role in helping Cronos develop, market, and distribute cannabis vape products throughout the U.S.

But the real lure of Altria continues to be its focus on its shareholders. The company intends to return approximately 80% of its earnings to shareholders in the form of a dividend. Its board of directors also recently authorized a $1 billion share buyback program, which follows the $3.5 billion repurchase program that was fulfilled as of the end of 2022. 

While Altria's growth heyday is no more, it's still an income powerhouse that delivers highly predictable operating cash flow in any economic environment.