Dividend stocks can be a great way to play the market. They typically provide reliable passive income and can offer a less volatile strategy than solely investing for appreciation. However, investors need to make sure that the companies they invest in can maintain their dividends, especially if they have high dividend yields. Evaluating their ability to grow the dividend isn't a bad idea, either.
Dividend stocks can also appreciate, so there could be additional upside. Often, companies trying to execute a turnaround will pay higher dividends to compensate investors while they wait for management to execute its vision. Investing $5,000 just once in equal portions across these three ultra-high-yielding stocks will earn you $320 in passive income every year.
Verizon -- 6.96% dividend yield
Telecommunications giant Verizon (VZ 0.99%) has been a strong dividend stock for decades now. Not only does it pay a nearly 7% yield, it has consistently grown the dividend since 2005.
VZ Dividend data by YCharts.
In the first nine months of the year, Verizon paid out about 65% of its earnings in dividends. Earnings also fell roughly $1.8 billion from the same period in 2023. Furthermore, the company generated $14.6 billion of free cash flow through the first nine months of the year, so the company seems to have ample ability to cover and likely grow the dividend moving forward. Analysts expect free cash flow to step down to about $18.5 billion next year, according to data provided by Visible Alpha, but that's still more than enough to cover the dividend.
In terms of strategy, Verizon hopes to increase its share of the fiber-optic internet market. The company recently added 2.2 million subscribers through its $20 billion acquisition of Frontier Communications. Management also wants to ramp up its fixed wireless broadband customers, and it recently surpassed 4 million fixed internet subscribers 15 months ahead of schedule. Debt and concerns about Verizon's ability to grow in a saturated market weighed on the stock in 2024. However, if the company keeps executing its growth plan and continues to support and grow the dividend, that should bode well for the stock.
Pfizer -- 6.4% yield
Pharmaceutical company Pfizer (PFE +0.35%) is known for manufacturing one of the leading COVID-19 vaccines. Pfizer cut its dividend in 2009 to help finance an acquisition. However, since 2010, the company has steadily grown its dividend at an even faster rate than Verizon.
PFE Dividend data by YCharts.
Analysts project that the company's free cash flow will more than sufficiently cover the dividend in the coming years, and on Pfizer's most recent earnings call, management said they are committed to maintaining and growing the dividend. The stock also struggled in 2024. Investors know that COVID-19 vaccine revenue will not last forever, and they are anxious about where the next leg of growth will come from.
Pfizer has been developing many new drugs with a focus on cancer, and management has previously said that it could have eight "blockbuster" drugs on the market by 2030. Pfizer acquired Seagen at the end of 2023 for $43 billion, significantly expanding its oncology pipeline. Specifically, management plans to focus on drugs to combat breast cancer, cancers affecting genital organs, thoracic cancer, and blood cancers such as lymphoma. Management believes that Seagen can generate $10 billion of revenue for Pfizer by 2030. Pharmaceutical companies face elevated risks because their drugs need to be effective, safe, and receive regulatory approval, but Pfizer has a strong track record.
Ford -- 6.14% yield
American carmaker Ford (F 0.12%) also pays a nice dividend. Its dividend has bounced around more than Verizon's and Pfizer's because the auto industry can be cyclical, which can cause the company's profits to fluctuate a bit more than the norm. However, in good times, Ford can surprise shareholders with a special dividend, and the company has averaged a high yield over time.
F Dividend Yield data by YCharts.
Management likes to try to return 40% to 50% of free cash flow to shareholders. On average, analysts currently expect Ford to generate free cash flow of $8 billion, which is at the midpoint of management's guidance, and then $9 billion in 2025.
Ford stock also struggled in 2024, as the company dealt with charges for vehicle recalls and warranty costs. Ford's electric vehicle unit also continues to lose money. However, on the company's earnings call, management said it expects earnings before interest and taxes on the electric vehicles to improve in 2025 due to cost improvements.
The stock has challenges ahead, as does the auto industry. But if you are just here for the dividend, you should do fine if you understand that the yield may bounce around a bit.
