There's more than one way to build wealth. In fact, it often makes sense to include a number of different investment approaches in the same portfolio. For example, mixing high-yield stocks into a growth-oriented portfolio may help to even out performance.
If you are eyeing a seven-figure nest egg as your ultimate investment goal, Enbridge (ENB -1.21%), Pioneer Natural Resources (PXD -2.28%), and Hannan Armstrong (HASI 2.12%) are three ultra-high-yield stocks that may help you get there. Let's find out a bit more about these three stocks.
1. Enbridge: Slow and steady gets you most of the way there
One of the big problems with growth stocks is that they tend to be very volatile, with big upswings and big drawdowns. If you add in a stock like Enbridge, which offers a dividend that yields a hefty 7.2% today, you have given yourself a foundation that you can rely on. There are a few reasons for this.
For starters, Enbridge is one of the largest midstream companies in North America. It owns vital energy infrastructure that helps to move energy around the world. Its assets would not be easy to replace or replicate. Notably, however, it avoids the volatility of the energy sector by charging fees for the use of its assets. Energy is the lifeblood of the modern world, so this generally creates a reliable stream of cash flows.
The proof of this comes in the form of its dividend, which has been increased annually for 28 consecutive years. The dividend is only likely to grow in the low- to mid-single digits over time, but with such a high starting point, that shouldn't be a problem. A mere 3% in stock price appreciation added to the 7% dividend yield would get you to around the 10% return the market has averaged over the long term. And when the market is tanking, you can focus on the dividends you are collecting from Enbridge rather than the paper losses you are likely to be suffering with growth stocks.
2. Pioneer Natural Resources: Softening the pain at the pump
Pioneer Natural Resources is a bit more complex. This company is an energy driller, producing oil and natural gas. While Enbridge avoids commodity price volatility, Pioneer leans into it, tying its dividend to its financial performance. The dividend yield today is 6.9%. That will change -- the dividend has been cut four quarters in a row at this point because oil prices have come down from a recent peak. Basically, the dividend will vary along with energy prices.
Why might you want that? If you use oil, natural gas, or gasoline, you inherently have to deal with variable costs. Pioneer's dividend is most likely going to rise when your energy costs are going higher, helping to offset the impact. And when your energy costs are falling, lowering your expenses, Pioneer's dividend will likely decline too. In essence, Pioneer's variable dividend offers you a hedge of sorts against energy price volatility.
But that's not the whole story. The company has around 20 years' worth of drilling opportunities in the onshore U.S. market, so there's a long runway ahead for dividends. And it has fairly attractive production costs thanks to highly efficient operations, meaning it should be able to turn a profit even in less hospitable energy markets. All in all, Pioneer can help you deal with the inherent volatility in your everyday life, which can help you stay invested even during hard times.
3. Hannon Armstrong: Preparing for a cleaner future
Technically, Hannon Armstrong is a mortgage real estate investment trust (REIT). But it has a very unique focus. It provides loans to clean energy businesses. The assets backing the loans are largely backed by long-term contracts, so there's a clear line of sight to the cash flows they will produce. That provides a strong underpinning to this REIT's big 6.8% yield.
While the first two names here are largely focused on carbon fuels, Hannon Armstrong is focused on the future of energy. In fact, management believes that there will be $1 trillion spent on the energy transition from carbon to clean energy between 2023 and 2050. And it intends to be there to help with the financing.
So far Hannon Armstrong has rewarded investors well, with distributable earnings rising at a compound annual rate of 11% between 2014 and 2022. The dividend has been increased annually for five years. That's a relatively short time, but Hannon Armstrong is a relatively young company. If you are looking for a way to tap into the clean energy space, this high-yield mortgage REIT could be a great way to mix growth and income into one investment.
Don't forget the foundation
You could invest only in growth stocks or only in value stocks or only in whatever type of stock you like. But then your portfolio is completely exposed to just one style, and when it goes out of favor you risk the type of emotional duress that could lead to bad decisions. If you add high-yield stocks to the mix, you vary your approach -- and, even when Wall Street is in the dumps, you can focus on the dividends you are collecting (and perhaps reinvesting) as a way to distract yourself from the red ink elsewhere in your portfolio. Diversification isn't sexy, but names like Enbridge, Pioneer, and Hannon Armstrong can help to make your portfolio stronger as you strive to reach millionaire status.
