The disappointing August employment report showed that only 22,000 jobs were created. The number was well below estimates of 75,000, and it almost assures that the Federal Reserve will lower interest rates on September 17th for the first time since last December. It is also likely that the fed funds rate will be significantly lower than today’s effective federal funds rate of 4.33%, which is already below the long-term average of 4.61% by the end of 2025, given the anticipated rate cuts. Investors seeking a total return that balances the need for passive income with the desire to add growth and combat inflation should focus on solid, ultra-high-yield dividend stocks, which are expected to perform well when the Federal Reserve returns to its long-awaited rate-cutting stance.
Since 1926, dividends have contributed approximately 32% of the total return for the S&P 500, while capital appreciation has contributed 68%. Therefore, sustainable dividend income and capital appreciation potential are essential for total return expectations. A study by Hartford Funds, in collaboration with Ned Davis Research, found that dividend stocks delivered an annualized return of 9.18% over the 50 years from 1973 to 2023. Over the same timeline, this was more than double the annualized return for non-payers (3.95%).
We screened our 24/7 Wall St. ultra-high-yield dividend stocks research database, looking for quality companies that pay a dividend of at least 8%. Five standouts in their respective sectors hit our screens, and all make sense for those looking for passive income and have a somewhat higher risk tolerance. All of the companies are rated Buy at the top Wall Street firms we cover.
Why do we cover Ultra-High-Yield dividend stocks?
While not suited for everybody, those trying to build strong passive income streams can do exceptionally well with some of these top companies in their portfolios. Paired with more conservative blue-chip dividend giants, investors can employ a barbell approach to generate substantial passive income streams.
Ares Capital
The company specializes in providing financing solutions for the middle market and appears poised to reach new highs, while garnering a Buy rating from 12 analysts. This company is a high-yielding Business Development Company (BDC). Ares Capital Corporation (NASDAQ: ARCC) specializes in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle-market companies.
It also makes growth capital and general refinancing. It prefers to invest in companies engaged in basic and growth manufacturing, business services, consumer products, healthcare products and services, and information technology sectors.
The fund will also consider investments in industries such as:
- Restaurants
- Retail
- Oil and gas
- Technology sectors
It focuses on investments in the Northeast, Mid-Atlantic, Southeast, and Southwest regions from its New York office, the Midwest region from the Chicago office, and the Western region from the Los Angeles office.
The fund typically invests between $20 million and $200 million, with a maximum investment of $400 million, in companies with an EBITDA between $10 million and $250 million per year. It makes debt investments between $10 million and $100 million
The fund invests through:
- Revolvers
- First-lien loans
- Warrants
- Unitranche structures
- Second-lien loans
- Mezzanine debt
- Private high yield
- Junior Capital
- Subordinated debt
- Non-control preferred and common equity.
The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically acquires stressed and discounted debt positions.
Ares Capital Corporation prefers to be an agent and lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.
Wells Fargo has assigned an Overweight rating, accompanied by a $23 target price.
CTO Realty Growth
CTO Realty Growth is a publicly traded real estate investment trust that owns and operates a portfolio of high-quality, retail-based properties. With a rich dividend and solid upside potential, this unknown REIT makes sense for passive income investors. CTO Realty Growth, Inc. (NYSE: CTO) owns and operates a portfolio of high-quality, retail-based properties located primarily in higher-growth markets in the United States. With a 96% leased occupancy rate and a strategy targeting high-yield acquisitions, CTO offers strong income potential. It has paid dividends for 48 consecutive years, reflecting reliability. In addition, CTO’s smaller market cap and focus on retail REITs in specific growth markets make it less visible compared to larger, more diversified REITs.
The Company’s segments include:
- Income properties
- Management services
- Commercial loans and investments
- Real estate operations
The CTO holds a stake in Alpine Income Property Trust, adding to its diversification. With a 96% leased occupancy rate and a strategy targeting high-yield acquisitions, CTO offers strong income potential. It has paid dividends for 48 consecutive years, reflecting reliability. (NYSE: PINE), a publicly traded net lease REIT.
The commercial loans and investments segment includes a portfolio of five commercial loan investments and two preferred equity investments.
Its income property operations consist of income-producing properties.
CTO Realty Growth’s business includes its investment in PINE. The portfolio of properties includes:
- Carolina Pavilion
- Millenia Crossing
- Lake Brandon Village
- Crabby’s Oceanside
- Fidelity
- LandShark Bar & Grill
- Granada Plaza
- The Strand at St. Johns Town Center
- The Shops at Legacy
- Price Plaza
Raymond James has a Strong Buy rating on the shares with a $22 target price objective.
Plains All American Pipeline
This stock has been locked in a tight trading range and appears poised to break out, while offering a dependable dividend yield. Plains All American Pipeline, L.P. (NYSE: PAA), through its subsidiaries, engages in the pipeline transportation, terminalling, storage, and gathering of crude oil and natural gas liquids (NGL) in the United States and Canada.
The company operates in two segments:
- Crude Oil
- Natural Gas Liquids (NGL).
The Crude Oil segment offers:
- Gathering and transporting crude oil through pipelines
- Gathering systems
- Trucks, barges, or railcars
- Terminalling, storage, and other facilities-related services and merchant activities
The Natural Gas Liquids segment provides:
- Gathering
- Fractionation
- Storage
- Transportation
- Terminalling activities
- Ethane, propane, normal butane, iso-butane, natural gasoline, and crude oil refining processes
UBS has a Buy rating with a $25 target price objective.
Starwood Property Trust
Starwood Capital is a well-established global investor with international investments spanning over 30 countries and is an affiliate with this high-yielding company, run by real estate legend Barry Sternlicht. Starwood Property Trust Inc. (NYSE: STWD) operates as a real estate investment trust (REIT) in the United States, Europe, and Australia.
It operates through four segments:
- Commercial and Residential Lending
- Infrastructure Lending
- Property
- Investing and Servicing segments
The Commercial and Residential Lending segment:
- Originates, acquires, finances, and manages commercial first mortgages
- Non-agency residential mortgages
- Subordinated mortgages
- Mezzanine loans
- Preferred Equity
- Commercial mortgage-backed securities (CMBS)
- Residential mortgage-backed securities
The Infrastructure lending segment originates, acquires, finances, and manages infrastructure debt investments.
The Property segment primarily develops and manages equity interests in stabilized commercial real estate properties, including multifamily properties and commercial properties subject to net leases, which are held for investment purposes.
The Investing and Servicing segment:
- Manages and works out problem assets
- Acquires and contains unrated, investment-grade, and non-investment-grade rated CMBS comprising subordinated interests of securitization and re-securitization transactions
- Originates conduit loans to sell these loans into securitization transactions and acquire commercial real estate assets, including properties from CMBS trusts
Wells Fargo has an Outperform rating, accompanied by a $24 target.
USA Compression Partners
USA Compression Partners provides natural gas compression services under term customer contracts. While perhaps less known than their peers, this top company pays shareholders one of the largest dividends in the industry. USA Compression Partners, LP. (NYSE: USAC) provides natural gas compression services.
The company offers compression services to:
- Oil companies and independent producers
- Processors
- Gatherers
- Transporters of natural gas and crude oil, as well as operating stations
USA Compression Partners primarily provides natural gas compression services to infrastructure applications, including centralized natural gas gathering systems, processing facilities, and gas lift applications for crude oil wells.
Raymond James has assigned an “outperform” rating with a target price of $30 for this company.
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