Investors love dividend stocks, especially those with ultra-high yields, because they provide a substantial passive income stream and offer significant total return potential. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. Passive income is revenue generated without the earner’s continuous active effort. This makes it a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
According to the Internal Revenue Service (IRS), passive income generally includes earnings from rental activity or any trade, business, or investment in which the individual does not materially participate. It can also include income from limited partnerships, stocks, bonds, and other similar enterprises in which the investor is not actively involved. The more passive income that can help cover rising costs—such as mortgages, insurance, taxes, and other expenses—the easier it is for investors to set aside money for future needs as they prepare for retirement. Dependable, recurring dividends—especially those paid monthly—are a recipe for success.
Four of our favorite ultra-high-yield stocks are on sale, and top Wall Street firms that we cover here at 24/7 Wall St. rate three of the four at Buy.
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.
AGNC Investment
AGNC Investment Corp. (NASDAQ: AGNC) provides private capital to the U.S. housing market, enhancing liquidity in the residential real estate mortgage markets and, in turn, facilitating home ownership in the United States. And this company has paid solid monthly dividends for years.
The company invests primarily in agency residential mortgage-backed securities (agency RMBS) on a leveraged basis.
These investments consist of residential mortgage pass-through securities and collateralized mortgage obligations for which a U.S. government-sponsored enterprise guarantees the principal and interest payments.
AGNC buys debt from the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Fannie Mae and Freddie Mac are GSEs, or government-sponsored enterprises. Alternatively, AGNC may purchase debt from a U.S. government agency, such as the Government National Mortgage Association (Ginnie Mae).
Wells Fargo has an Overweight rating for the stock with a $10 target price.
FS KKR
FS KKR Capital Corp. (NASDAQ: FSK) is a business development company (BDC) that provides customized credit solutions to private middle-market U.S. companies. This is a well-known name on Wall Street, offering a solid entry point now and paying a substantial dividend. FS KKR specializes in investments in debt securities. It seeks to purchase interests in loans through secondary market transactions or directly from the target companies as primary market investments.
While the company posted disappointing numbers for the quarter, it has traded back down to the lows of April after the big market sell-off. It bounced significantly off the low then and, if it holds current trading levels, it is likely to trade back up into the $20+ range. In the meantime, shareholders will receive a giant dividend.
The company also seeks to invest in:
- First-lien senior secured loans
- Second-lien secured loans
- Subordinated loans
- Mezzanine loans
The firm also receives equity interests, such as warrants or options, in connection with debt investments for additional consideration. It seeks to purchase minority interests in common or preferred equity in its target companies, either in conjunction with one of the debt investments or through a co-investment with a financial sponsor.
The fund may opportunistically invest in corporate bonds and similar debt securities, but does not seek to invest in start-ups, turnaround situations, or companies with speculative business plans. It aims to invest in small and middle-market companies in the United States.
Oppenheimer has a Market Perform rating with a $21 target price.
TXO Partners
TXO Partners L.P. (NYSE: TXO) acquires, develops, optimizes, and exploits conventional oil, natural gas, and natural gas liquids reserves. It has a massive dividend and is trading near a 52-week low. TXO Partners is a master limited partnership. Its focus is on the acquisition, development, optimization, and exploitation of conventional oil, natural gas, and natural gas liquids (NGL) reserves in North America.
The company’s acreage positions are concentrated in three main areas:
- Permian Basin of West Texas and New Mexico
- San Juan Basin of New Mexico and Colorado
- Williston Basin of Montana and North Dakota
Its assets consist of approximately 1,117,628 gross (549,229 net) leasehold and mineral acres located primarily in the Permian Basin, San Juan Basin, and Williston Basin. The assets include a 50% interest in Cross Timbers Energy, also known as Cross Timbers.
As an operator, it designs and manages the development, recompletion, or workover of all the wells it operates, and supervises operation and maintenance activities on a day-to-day basis. The company markets the majority of the natural gas, NGL, crude oil, and condensate production from the properties on which it operates.
Raymond James has a Strong Buy rating with a $24 target price.
Trinity Capital
Trinity Capital Inc. (NASDAQ: TRIN) offers venture debt financing to high-growth, venture capital-backed startups. Based in Phoenix, this company also pays a massive dividend. Trinity Capital is an internally managed, closed-end, non-diversified management investment company that operates as a business development company. It is a specialty lending company that provides debt, including loans and equipment financing, to growth-stage companies, including venture-backed companies and companies with institutional equity investors.
Its investment objective is to generate current income and capital appreciation through its investments across five vertical markets. It seeks to achieve its investment objective by making investments consisting primarily of term loans, equipment financings, working capital loans, equity, and equity-related investments.
The company’s equipment financings involve loans for general or specific use. These include the acquisition of equipment that is secured by the equipment or other assets of the portfolio company.
Trinity Capital makes investments in growth-stage companies, which are typically private and often include those backed by institutional investors.
UBS has a Buy rating and a $17.50 price objective.
Top Gaining Stocks
Top Losing Stocks