The red-hot January non-farm payrolls report blew away Wall Street, and almost at once, the prediction for 2.5 rate cuts this year was slashed to 2. In addition, if the January consumer price index number, to be posted on Friday, comes in below expectations, there may be no rate cuts until the summer, if then. The best move for growth and income investors seeking solid passive income is to start adding top companies now, as interest rates will rise with no help from the Federal Reserve.
When hopes for a rate cut fade, it suggests interest rates will likely remain higher for longer. Here’s why ultra-high-yield stocks become more attractive in this environment. The basic trade-off: When interest rates are high, “safe” investments like Treasury bonds, CDs, and money market funds offer decent returns with virtually no risk. For example, if you can get 5% guaranteed from a Treasury bond, why take on stock market risk? Why high-yield stocks compete better: Ultra-high-yield stocks (often paying 7-10%+ in dividends) become relatively more appealing because:
- Bigger income gap – If a stock pays 9% and Treasuries pay 5%, that 4% extra yield compensates you for taking on some risk. The higher the dividend, the more attractive that premium looks.
- Income-focused investors need options; retirees and others who require regular income from their investments still need to generate cash flow. If rates aren’t coming down and bond yields stay moderate, high-dividend stocks offer one of the few ways to get substantially higher income.
- Less competition from future rate cuts – When people expect rate cuts, they often buy growth stocks (tech, etc.), anticipating they’ll soar when rates drop. But if cuts aren’t coming, investors shift focus back to “get paid while you wait” strategies, making dividend income more valuable relative to hoping for price appreciation.
We screened our ultra-high-yield dividend stocks database for quality companies yielding between 7% and 10%. Five of our favorite companies fall into this group, and all are rated Buy by the top Wall Street firms we cover.
Why do we cover Ultra-High-Yield dividend stocks?
While not suitable for everyone, those looking to build strong passive income streams can do exceptionally well with some of these top companies in their portfolios. When paired with more conservative blue-chip dividend giants, a barbell approach can generate substantial passive income.
Ares Capital
The company specializes in providing financing solutions for the middle market and appears poised to reach new highs, garnering a Buy rating from 12 analysts and yielding a 9.94% dividend. This company is a high-yielding Business Development Company (BDC). Ares Capital Corporation (NASDAQ: ARCC) specializes in acquisitions, recapitalizations, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions for middle-market companies.
It also makes growth capital and general refinancing. It prefers to invest in companies in basic and growth manufacturing, business services, consumer products, healthcare products and services, and information technology.
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 its Chicago office; and the Western region from its Los Angeles office.
The fund typically invests between $20 million and $200 million, with a maximum of $400 million, in companies with EBITDA between $10 million and $250 million annually. 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 act as an agent and lead transactions in which it invests. The fund also seeks board representation in its portfolio companies.
Royal Bank of Canada has an Outperform rating with a $22 target.
Energy Transfer
Energy Transfer is one of North America’s largest and most diversified midstream energy companies. This top master limited partnership is a safe option for investors seeking energy exposure and income, as the company pays a 7.16% distribution yield. Energy Transfer LP (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint across all major domestic production basins.
The company is a publicly traded limited partnership with core operations that include:
- Complementary natural gas midstream, intrastate, and interstate transportation and storage assets
- Crude oil, natural gas liquids (NGL), and refined product transportation and terminalling assets
- NGL fractionation
- Various acquisition and marketing assets
Following the acquisition of Enable Partners in December 2021, Energy Transfer owns and operates over 114,000 miles of pipelines and related assets in 41 states, spanning all major U.S. producing regions and markets. This further solidifies its leadership position in the midstream sector.
Through its ownership of Energy Transfer Operating, L.P., formerly known as Energy Transfer Partners, L.P., the company also owns Lake Charles LNG Company, the general partner interests, the incentive distribution rights, and 28.5 million standard units of Sunoco LP (NYSE: SUN), and the public partner interests and 39.7 million standard units of USA Compression Partners, LP (NYSE: USAC).
JPMorgan has an Overweight rating on the shares, with a $21 target price.
Healthpeak Properties
This leading company invests in real estate in the healthcare industry, including senior housing, life sciences, and medical offices. Healthpeak Properties, Inc. (NYSE: DOC) is a fully integrated real estate investment trust (REIT) with a solid 7.24% dividend.
The Company acquires, develops, owns, leases, and manages healthcare real estate across the United States. It owns, operates, and develops real estate focused on healthcare discovery and delivery.
Healthpeak Properties segments include:
- Lab
- Outpatient medical
- Continuing care retirement community (CCRC).
The Outpatient medical segment owns, operates, and develops outpatient medical facilities, hospitals, and laboratory facilities.
The lab segment properties contain laboratory and office space, and are leased primarily to:
- Biotechnology
- Medical device and pharmaceutical companies
- Scientific research institutions
- Government agencies
- Organizations involved in the life science industry
Its CCRC segment comprises a retirement community offering independent living, assisted living, memory care, and skilled nursing units, providing a continuum of care within an integrated campus.
Baird has an Outperform rating with a $20 target price.
Plains All American Pipeline
This stock has been locked in a tight trading range and appears poised to break out, while offering a dependable 7.68% dividend yield. Plains All American Pipeline, L.P. (NYSE: PAA) owns and operates midstream energy infrastructure and provides logistics services for crude oil and natural gas liquids (NGL).
The company owns a network of pipeline gathering and transportation systems, as well as terminalling, storage, processing, fractionation, and other infrastructure assets serving key producing basins, transportation corridors, and major market hubs and export outlets in the United States and Canada.
The Crude Oil segment’s operations consist of gathering and transporting crude oil via pipelines, gathering systems, trucks, and, at times, barges or railcars. Its assets provide services to third parties and to its merchant activities.
Its NGL segment operations involve natural gas processing and NGL fractionation, storage, transportation, and terminalling. The NGL segment offers merchant activities, including the acquisition of extraction rights from producers and/or shippers of the gas streams that pass through its Empress facility.
UBS has a Buy rating with a big $25 target price.
Starwood Property Trust
Starwood Capital is a well-established global investor with international investments across more than 30 countries and an affiliate of this high-yield company, which boasts a 10.60% dividend yield led by real estate legend Barry Sternlicht. Starwood Property Trust, Inc. (NYSE: STWD) is a real estate investment trust (REIT) operating 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, including multifamily and net-leased properties, held for investment.
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
Keefe, Bruyette, and Woods has an Outperform rating, accompanied by a $21 target.
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