Though there are countless ways to build wealth on Wall Street, few investing strategies have proved as fruitful over the long run as buying dividend stocks.
Publicly traded companies that regularly pay a dividend to their shareholders tend to be profitable on a recurring basis, and they typically provide transparent, long-term growth outlooks. Equally important, most income stocks are time-tested, which means they've navigated their way through turbulent times before.
Best of all, dividend stocks are collectively outperformers. In 2013, the wealth management division of JPMorgan Chase released a study that compared the annualized returns of companies initiating and growing their payouts to public companies not paying a dividend. JPMorgan's study spanned 40 years (1972-2012).
The end result, as you might have guessed, was a complete drubbing by the income stocks. The dividend-paying companies delivered an annualized 9.5% return over four decades, compared to just 1.6% for the non-payers.
Image source: Getty Images.
Ideally, income investors want the highest possible yield with little or no principal risk. Yet, history shows that risk and yield tend to go hand-in-hand once yields reach 4%. In other words, ultra-high-yield stocks (those with yields four or more times higher than the S&P 500) can sometimes be more trouble than their jaw-dropping yields imply.
But this isn't always the case. With extra vetting, some high-quality, sustainable, supercharged income stocks can be uncovered.
What follows are three unequaled ultra-high-yield dividend stocks begging to be bought in November and sporting an average yield of 7.05%!
Enterprise Products Partners: 7.39% yield
The first unrivaled ultra-high-yield dividend stock that's primed to be purchased by income seekers is energy company Enterprise Products Partners (EPD +0.58%). Enterprise is yielding a healthy 7.4% and has increased its base annual distribution for 25 consecutive years.
Considering what happened to the spot price of crude oil during the early stages of the COVID-19 pandemic, the idea of an oil and gas stock delivering a safe payout probably sounds like an oxymoron. While drilling companies can certainly be whipsawed by wild swings in the spot price of crude oil, Enterprise Products Partners' secret to success is its operating model.
NYSE: EPD
Key Data Points
Enterprise is a midstream energy company. It's effectively a middleman that operates more than 50,000 miles of transmission pipeline and can store more than 260 million barrels of liquids, along with 14 billion cubic feet of natural gas.
What makes this particular midstream energy company so special is its contracts. Enterprise predominantly secures long-term, fixed-fee contracts with upstream drillers.
Fixed-fee contracts remove the effects of inflation and spot-price volatility from the equation, which leads to highly predictable operating cash flow in any economic climate. Predictability is imperative to success since it's what gives Enterprise Products Partners' management team the confidence to outlay capital for new projects, acquisitions, and the company's ever-growing distribution.
Something else to consider is that the global supply of crude oil is liable to remain constrained for years to come. Russia's war with Ukraine, coupled with reduced capital investment from energy companies during the pandemic, will make it difficult to increase supply anytime soon. This is, collectively, lifting the spot price for crude oil and incentivizing domestic drillers to up future production. In short, it's giving Enterprise an opportunity to land more lucrative long-term deals.
With an extremely healthy distribution coverage ratio and a forward price-to-earnings (P/E) ratio of just 10, Enterprise Products Partners is a value and income investors' dream come true.
NYSE: O
Key Data Points
Realty Income: 6.27% yield
A second ultra-high-yield dividend stock you'll be kicking yourself for not adding to your portfolio in November is retail real estate investment trust (REIT) Realty Income (O 0.30%). Realty Income pays its dividend on a monthly basis and has increased its payout for 104 consecutive quarters.
The idea of buying into a retail REIT as consumers shift their buying habits online might not sound like a smart move. But if you dig into Realty Income's vast property portfolio, you'll find a company well positioned for long-term success.
As of the end of June, Realty Income owned 13,118 properties. Despite steadily growing e-commerce sales and short-term worries about the health of the U.S. economy, Realty Income's occupancy rate stood at 99%, with a weighted average remaining lease length of 9.6 years. The key point being that the company should enjoy many years of predictable operating income.
What's even more important is the composition of Realty Income's leases. Approximately 76% of its leases are to service-oriented or non-discretionary/low-price-point businesses that will draw in consumers in any economic climate. Examples include grocery stores, convenience stores, dollar stores, and drug stores. Another 15% of its portfolio is comprised of non-retail leases. This means roughly 91% of Realty Income's long-term leases are resilient/resistant to downturns in the U.S. and global economy.
Realty Income is also benefiting from industry diversification. Over the past year, the company has begun building its presence in the gaming industry through two key deals. Though gaming is a somewhat cyclical industry, the U.S. economy spends a disproportionate amount of time expanding.
Valued at less than 12 times the consensus cash flow for 2024, Realty Income stock is cheaper than it's been in more than a decade.
Image source: Getty Images.
AT&T: 7.49% yield
The third unequaled ultra-high-yield dividend stock that's begging to be bought in November is none other than telecom company AT&T (T +0.91%). AT&T's 7.5% yield is the high-water mark of this list.
The biggest knock against AT&T is a July report from The Wall Street Journal that suggests lead-clad cables still in use by legacy telecom providers pose health and environmental risks. A small number of Wall Street analysts and pundits believe AT&T and its peers could face sizable costs to replace these cables.
But there's another side to this story. For its part, AT&T has stated that lead-sheathed cables make up a small portion of its network. It's also found no evidence that lead-clad cables pose a health hazard. Maybe most important, any financial liability would be determined in the U.S. court system, which likely would take years. The lead-sheathed cable concern is a non-starter for AT&T.
NYSE: T
Key Data Points
What is noteworthy is the steady growth AT&T is achieving thanks to the 5G revolution. After roughly a decade of 4G LTE download speeds, upgrading its network to support 5G speeds is leading to a meaningful uptick in data consumption. Data is the high-margin bread-and-butter that moves the needle for AT&T wireless segment.
Just as impressive is the growth AT&T is seeing in its broadband operations. Even though broadband hasn't been a major growth story in two decades, the ability to offer its residential and enterprise customers 5G speeds is helping to rapidly increase its AT&T Fiber subscriber count. Broadband is the perfect dangling carrot to encourage high-margin service bundling.
While skeptics have long been concerned about AT&T's debt load, the spin-off of content arm WarnerMedia in April 2022 substantially improved the health of the company's balance sheet. Following the merger of WarnerMedia and Discovery to create Warner Bros. Discovery, the new media entity took responsibility for certain lots of debt previously held by AT&T. In addition to cash payments, AT&T received $40.4 billion in concessions following this spin-off. Between March 31, 2022, and Sept. 30, 2023, AT&T's net debt has declined from $169 billion to $128.7 billion.
AT&T stock looks to have an exceptionally favorable risk-versus-reward profile at just 6 times forward-year earnings.
