Are you looking for a way to build up a stream of passive income without committing endless resources? If so, these ultra-high-yield dividend stocks could be exactly what you're looking for.
These businesses aren't flashy, but they do produce reliable profits. Plus, they're committed to distributing earnings to their shareholders.
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At recent prices, these stocks offer ultra-high yields of 7.6% and higher. About $5,150 spread among the three is all it takes to secure $500 worth of dividend payments per year.
1. Verizon
If you're like most folks, it's probably been a long time since you changed your mobile or internet service provider. With services that we all need, Verizon (VZ 1.17%) sports some of the stock market's most reliable cash flows. The company has raised its dividend payout for 17 straight years.
Soaring interest rates have the market worried that Verizon's debt load could become too much of a burden. Steady cash flow generation and declining capital expenditures suggest its debt load will be manageable.
Shares of Verizon offer a huge 7.7% yield at recent prices. An initial investment of about $1,330 is all it takes to secure $100 in annual dividend income from this stock.
Wireless equipment sales are sliding, but this is a much smaller problem than it used to be. After falling 21% year over year, the wireless equipment segment is responsible for just 16% of total revenue.
Verizon isn't installing many landline telephones these days, but it's bringing in heaps of broadband internet subscribers. The second quarter of 2023 was the third consecutive quarter with more than 400,000 net broadband subscribers.
Verizon is the lowest-yielding dividend stock on this list, but management is committed to raising the payout at a steady pace. Earlier this month, the company announced its 17th consecutive annual dividend raise. With heaps of new broadband subscriptions, I won't be surprised if it keeps up its streak for another 17 years.
2. PennantPark Floating Rate Capital
PennantPark Floating Rate Capital (PFLT 0.61%) is a business development company (BDC), which means it legally avoids paying income taxes by distributing at least 90% of profits to investors as a dividend. These rules make steady dividend growth extra challenging, but this BDC appears up to the task. If we ignore a few exceptions in 2018, the company has maintained or raised its monthly payout since it began distributing dividends in 2011.
Like most BDCs, PennantPark lends to middle-market companies that can't get the attention they want from bigger banks. As its name implies, it only lends out capital at floating interest rates. Those rates have grown so quickly that the market is concerned about its portfolio companies' ability to keep up with soaring interest expenses.
Interest-rate fears have pushed PennantPark Floating Rate Capital shares so low that they offer a huge 11.4% dividend yield. At recent prices, about $1,750 is all it takes to set yourself up with $200 per year of dividend payments from this stock.
Despite everything the economy has thrown at PennantPark's portfolio companies, just three out of 130 were on nonaccrual status at the end of June. That's one more than the BDC reported a year earlier, which is hardly a sign that it won't be able to meet its dividend commitment.
3. Ares Capital
Ares Capital (ARCC 0.73%) is a much larger BDC than PennantPark, but it offers a slightly smaller 10% yield at recent prices. At this level, about $2,030 is all it takes to get set up with $200 in annual dividend income from this stock.
Earlier this year, Fitch Ratings confirmed Ares Capital's BBB credit rating. This investment-grade rating allows the BDC to source capital at low rates that its portfolio companies can only dream of.
Like PennentPark, Ares Capital lends to middle-market companies and prefers floating-rate debt instruments. At the end of June, 68% of its portfolio was earning interest at rates that soared. The BDC reported an 11.1% average yield on total investments at the end of June, which rose sharply from just 8.6% a year earlier.
In the second quarter, just 1.1% of Ares Capital's total investment portfolio was on nonaccrual status. That's an improvement over the 1.3% rate it reported for the first quarter.
Investors want to keep an eye on Ares Capital's default rate in the quarters ahead, but it looks like the worst is over for this ultra-high-yield stock. Buying now to take advantage of a double-digit percentage yield is a smart move.
