There are a lot of strategies investors can employ on Wall Street to grow their wealth. With thousands of publicly traded companies and more than 3,000 exchange-traded funds (ETFs) to choose from, there's bound to be one or more securities that can help you meet your investment goals.
But among these countless strategies, buying and holding high-quality dividend stocks delivers some of the most robust returns over long periods.
Companies that pay a regular dividend to their shareholders are often profitable on a recurring basis, capable of providing transparent long-term growth outlooks, and have, in many instances, demonstrated their ability to navigate an economic downturn. This time-tested aspect of dividend stocks helps to lure income seekers.
However, the most intriguing characteristic of dividend stocks is their long-term outperformance. In The Power of Dividends: Past, Present, and Future, the researchers at Hartford Funds, in collaboration with Ned Davis Research, compared the annualized return of dividend stocks to non-payers over a 51-year period (1973-2024). Not only did the dividend stocks more than double up the annualized return of non-payers (9.2% vs. 4.31%), but they did so while being considerably less volatile.
Image source: Getty Images.
The challenge for income seekers is balancing yield and risk. The higher the yield, the higher probability of things being too good to be true. Since yield is a function of payout relative to share price, a struggling business with a plunging share price can trap investors with a high but unsustainable yield.
The good news is that safe ultra-high-yield dividend stocks, with yields that are at least four times higher than the average yield of the benchmark S&P 500 (1.31%, as of May 30), do exist, and can make investors richer over time.
What follows are three ultra-high-yield dividend stocks, sporting an average yield of 11.35%, which make for no-brainer buys in June.
Annaly Capital Management: 14.78% yield
The first supercharged income stock that makes for a compelling buy in June comes from an industry that Wall Street analysts have almost universally disliked since this decade began: mortgage real estate investment trusts (REITs). I'm talking about Wall Street's leading mortgage REIT, Annaly Capital Management (NLY +0.18%).
Recently, Annaly's board increased its quarterly distribution to $0.70 per share, which marks the first time since 2011 that the company has increased its dividend. While a nearly 15% yield might sound unsustainable, Annaly has averaged a roughly 10% annual yield over the last two decades.
The reason Wall Street has generally avoided mortgage REITs is because they're highly sensitive to changes in interest rates. Companies like Annaly typically don't perform well when the Federal Reserve is rapidly increasing interest rates, as well as when the Treasury yield curve is inverted. This results in higher short-term borrowing costs for Annaly and its peers and reduces net interest margin.
NYSE: NLY
Key Data Points
But when things seem their bleakest for mortgage REITs is when it's often the best time to buy. The steep yield-curve inversion that had worked against Annaly and its peers is no longer inverted (albeit by a small amount).
Additionally, the nation's central bank is in the midst of a well-telegraphed rate-easing cycle. A falling rate environment has historically been when mortgage REITs thrive. Short-term borrowing costs begin to fall, but still allow companies like Annaly to increase the average yield on the mortgage-backed securities they're buying and holding.
Best of all, $75 billion of Annaly Capital Management's $84.9 billion asset portfolio is in highly liquid agency securities. An "agency" asset is backed by the federal government in the unlikely event of default. This added protection affords Annaly the ability to lever its investments to maximize its profits and dividend.
With Annaly trading ever-so-slightly below its book value -- mortgage REITs often trade close to their respective book value -- and industry variables now working in its favor, the time to buy this income colossus has arrived.
Image source: Getty Images.
Pfizer: 7.32% yield
A second ultra-high-yield dividend stock that makes for a no-brainer buy in June is none other than pharmaceutical giant Pfizer (PFE 1.10%), which is yielding north of 7.3% for its shareholders.
The weakness in Pfizer's stock over the last three years can best be described as the company being a victim of its own success. During the COVID-19 pandemic, Pfizer's vaccine (Comirnaty) and oral therapy (Paxlovid) generated more than $56 billion in combined sales in 2022. Last year, sales shrank to about $11 billion on a combined basis and will likely fall further in 2025 on weaker Paxlovid sales.
Though Pfizer has lost tens of billions in COVID-19 therapy sales, perspective also shows that Comirnaty and Paxlovid are generating north of $1 billion in combined quarterly sales when no sales existed at the end of 2020 from this area of focus. Pfizer's revenue, including acquisitions, has grown by more than 50% over the last four years. In short, it's a stronger and more diverse company today than it was at the end of 2020 -- but it's not being treated like one due to recent sales weakness in its COVID-19 therapies.
One of the many reasons Pfizer can thrive moving forward is the December 2023 acquisition of cancer-drug developer Seagen for $43 billion. Aside from recognizing billions of dollars in immediate revenue, Seagen vastly expands Pfizer's oncology pipeline, which can benefit from strong pricing power and patients gaining earlier access to cancer-screening tools.
NYSE: PFE
Key Data Points
Furthermore, cost synergies directly tied to this buyout, coupled with Pfizer's ongoing cost realignment program, should result in approximately $4.5 billion in net-cost savings by the end of this year. Reduced costs should be a positive for the company's margins.
Investors should also consider that healthcare is an incredibly defensive sector. Regardless of how well or poorly the U.S. economy and stock market perform, people will continue to need prescription medicines. Though Pfizer isn't going to knock anyone's socks off with its growth rate, its cash flow tends to be highly predictable.
Pfizer stock is trading at less than 8 times forecast earnings per share for 2025, which makes this an ideal time for opportunistic income seekers to pounce.
PennantPark Floating Rate Capital: 11.94% yield
The third high-octane dividend stock income investors can purchase with confidence in June is small-cap business development company (BDC) PennantPark Floating Rate Capital (PFLT +0.60%). Unlike Annaly Capital Management and Pfizer, PennantPark pays its dividend on a monthly basis and is currently yielding close to 12%.
A BDC is a type of business that invests in middle-market companies -- i.e., unproven small- and micro-cap companies. At the end of March, PennantPark held almost $240 million in various preferred and common stock in middle market companies, along with $2.1 billion in first lien secured debt. This makes it a predominantly debt-focused BDC.
Focusing on debt offers a huge advantage when dealing with middle-market companies. Since these businesses often lack access to basic financial services, PennantPark can typically net a higher yield on its loans. As of March 31, its weighted average yield on debt investments was a scorching-hot 10.5%, which is more than double the yield you'll find on U.S. Treasury bonds.
NYSE: PFLT
Key Data Points
But the company's biggest advantage might just be that approximately 100% of its debt investments sport variable rates. When the Fed aggressively fought back against rapidly rising inflation in 2022 and 2023, it sent PennantPark's weighted average yield on debt investments notably higher. Even with the nation's central bank in a rate-easing cycle, rate cuts are being addressed slowly. This is allowing PennantPark to continue to facilitate high-interest loans.
Something else to note about PennantPark Floating Rate Capital is that delinquencies are minimal. Despite dealing with unproven businesses, only four companies, representing 2.2% of its portfolio on a cost basis, are currently delinquent. This is a testament to the vetting process by PennantPark's team.
Further, management has done an excellent job of protecting the company's invested principal. Including its preferred and common stock holdings, PennantPark has an average investment of $14.7 million spread across 159 companies. No single investment is large enough to compromise profitability or rock the boat.
To build on this point, all but $4.4 million of its $2.1 billion in debt investments is first-lien secured debt. First-lien secured debtholders find themselves at the front of the line for repayment in the event that a borrower seeks bankruptcy protection.
Similar to Annaly, PennantPark Floating Rate Capital tends to trade very close to its book value. With shares currently trading at a 7% discount to book, opportunistic investors can nab a fantastic company at a bargain price.
