Dividends are a major part of an investor’s complete return profile. They provide passive income that becomes extremely important, especially for investors who are nearing retirement age, when their risk/return profile skews more heavily toward security. By the same token, retirees don’t want to leave potential returns on the table, either, and they shouldn’t have to. In this high inflationary economy, dividend stocks are one strategy to get more bang for your buck.
The dividend yield is a percentage that reflects the income a stock will generate based on its price. Dividend stocks with an ultra-yield suggest more risk than the average dividend payer, as yields and stock prices tend to move in opposite directions. But they also present potential growth opportunities ahead for generous returns if you can find high-quality names. Reinvesting dividends is a strategy that will have a compounding effect and lead to higher distributions later.
Billionaire investor Warren Buffett, who is 93 years old, is a big fan of dividend stocks, saying, “[They] have the implied promise you keep paying them forever and not decrease them.” Buffett generates passive income from stocks like Chevron (NYSE: CHV), Citigroup (NYSE: C) and Coca-Cola (NYSE: KO), all of which pay attractive dividend yields. We’ve identified a trio of stocks whose yields are higher than the average stock as well as soaring Treasury bond yields and have given investors reason to trust they will continue to prioritize shareholder value.
Blackstone Mortgage Trust
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- Dividend Yield: 13.85%
- Quarterly Dividend Amount: $0.62
- REIT Price: $17.91
While commercial real estate might be experiencing a market downturn, Blackstone Mortgage Trust (NYSE: BXMT), a mortgage REIT, hasn’t skipped a beat. The real estate finance company, whose focus is on North America, Western Europe and Australia, has been paying making steady cash dividend payments over 35 quarters without interruption. Blackstone Mortgage Trust is managed by private equity giant Blackstone, which oversees $1.1 trillion in assets under management and should give retirees a sense of security.
REIT income has benefited from the high interest rate environment. With $1.7 billion in liquidity, Blackstone Mortgage Trust is in a strong position even as it continues to repay debt financing. While the REIT has not been immune to the downturn in commercial real estate, they “collected over $1 billion of repayments” in Q1 including the refinancing of a big office loan.
Management seems to believe the worst for commercial real estate is behind, “creating an attractive entry point for new investments,” per the earnings call. They’ve taken a proactive approach that has led to an impressive 92% performance in their $21 billion loan portfolio, suggesting a high quality of senior floating-rate loans.
Blackstone Mortgage Trust’s diversified portfolio has helped it to offset volatility and remain secure. The firm’s experienced management team has a proven ability to navigate the challenging market while its portfolio continues to produce strong cash flow and liquidity, a win/win for a dividend stock.
Delek Logistics Partners
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- Dividend Yield: 10.65%
- Quarterly Dividend Amount: $1.07
- Stock Price: $40.17
Given the heightened state of geopolitical tensions, retirees might also want to gain exposure to commodities, which they can do through Delek Logistics Partners (NYSE: DKL), an MLP. With a yield of 10.65%, Delek makes our list as an ultra-yield dividend stock that retirees can trust. On April 25, the company announced a 4.4% increase in its Q1 cash distribution to $1.07 per common LP unit, or $4.28 on an annualized basis. This Brentwood, Tenn.-based MLP, which was formed by Delek U.S. Holdings (DK), is responsible for transporting crude oil by pipeline in popular fields like the Permian Basin.
MLP pipeline stocks are a favorite among famous bond investor Bill Gross for their performance and tax-deferred dividends. He prefers them over AI stocks. Delek reported Q4 net income attributable to all partners of $22.1 million, down from $42.7 million year-over-year and owing to higher interest expenses. On the bright side, EBITDA increased to $100.9 million vs. $92.5 million year-over-year.
Delek boasts a track record of consistent dividend increases and management recently said they feel confident in their ability to maintain competitive distributions” to investors in 2024. Truist Securities recently initiated coverage on DKL with a “buy” rating and a price target of $46, suggesting the stock has 15% upside potential.
Pfizer
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- Dividend Yield: 6.61%
- Quarterly Dividend Amount: $0.42
- Stock Price: $25.40
By investing in a major pharmaceutical stock like Pfizer (NYSE: PFE), retirees gain exposure to the healthcare industry while avoiding the ups and downs of betting on a biotech startup. At 6.61%, Pfizer’s ultra yield isn’t quite as high as the other two stocks that made the list, but it’s still attractive. Investors just need to be patient with the stock, as it’s trading 60% below its 52-week high as the company works through vaccine-related write-offs.
Pfizer recently declared a Q2 dividend of $0.42 per share, representing 342 consecutive quarters of quarterly distributions paid by the company, which should give retirees some sense of trust despite the company’s high payout ratio. Pfizer also had some good news after the U.S. FDA approved its Beqvez drug for adults suffering from bleeding disorder Hemophilia B. It’s a pricey drug, as Pfizer will charge $3.5 million for the therapy, which will become available to patients during the current quarter.
Pfizer is focused on bolstering the revenue of its non-Covid drugs, so the latest FDA green light is a step in the right direction. The company also has several new drugs in the pipeline, and recently made an acquisition in the oncology space for cancer treatment, all of which are expected to fuel Pfizer’s next wave of growth.
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