Investors love dividend stocks because they provide dependable passive income streams and an excellent opportunity for solid total return. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or portfolio consists of income and stock appreciation. At 24/7 Wall St., we have focused on dividend stocks for over 15 years because, despite the stock market’s ups and downs, many people need reliable passive income streams to supplement their income from employment or other sources such as Social Security and pensions.
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 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.
We screened our 24/7 Wall St. ultra-high-yield dividend research database for companies that can generate investors’ big income streams while also offering growth potential, and five stocks that deliver huge dividends look like outstanding ideas to generate dependable passive income. Buying $10,000 of each stock will generate $5,489 each year in passive income. The figures and prices reflect the time this post was written, and the totals provided may be higher or lower when purchased.
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 use a barbell approach to generate substantial passive income.
Ares Capital
This business development company (BDC) specializes in providing financing solutions for the middle market, and it has a 9.89% dividend. Ares Capital (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
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 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 price.
$10,000 will purchase 528 shares at $1.92 each. That equals $1,014 per year.
Arko Petroleum
This recent initial public offering is an investor’s home run, with a 10.35% dividend, and those who buy shares will receive a 1099 instead of a K-1. Arko Petroleum (NASDAQ: APC) is a North American fuel distribution company.
The company supplies in states across these sections of the country:
- Mid-Atlantic
- Midwestern
- Northeastern
- Southeastern
- Southwestern
It operates through three segments: Wholesale, Fleet Fueling, and GPMP (GPM Petroleum, a subsidiary).
The Wholesale segment distributes fuel to gas stations operated by third-party dealers, sub-wholesalers, and bulk and spot purchasers (commercial, government, industrial businesses, and rack-buying dealers), on either a cost-plus or consignment basis, generally pursuant to long-term contracts.
Arko’s Fleet Fueling segment includes the operation of proprietary and third-party cardlock locations (unstaffed fueling locations that serve commercial vehicle fleets) that primarily sell fuel to commercial and municipal entity customers.
Its GPMP segment sells and supplies fuel to substantially all the Arko Retail Sites at the cost of fuel plus a fixed margin.
Since this was a recent IPO, Wall Street firms have not yet released research coverage but will soon.
$10,000 will purchase 520 shares, each paying $2. That equals $1,040 each year.
Ellington Financial
Ellington Financial (NYSE: EFC) has been at the forefront of data-driven investing since its founding in 1994. This high-quality mortgage real estate investment trust (REIT) company is a favorite among Wall Street investors and pays a substantial 12.60% monthly dividend. Its subsidiary, Ellington Financial Operating Partnership, acquires and manages mortgage-related, consumer-related, corporate-related, and other financial assets in the United States.
The company develops and manages residential mortgage-backed securities (RMBS) backed by:
- Prime jumbo, Alt-A, manufactured housing, and subprime residential mortgage loans
- RMBS for which the principal and interest payments are guaranteed
- Residential mortgage loans
- Commercial mortgage-backed securities
- Commercial mortgage loans and other commercial real estate debt
Ellington Financial also provides collateralized loan obligations, mortgage-related and non-mortgage-related derivatives, corporate debt and equity securities, corporate loans, and other strategic investments. In addition, the company offers consumer loans and asset-backed securities backed by consumer and commercial assets.
B. Riley has a Buy rating with a $16 price objective.
$10,000 will purchase 805 shares at $1.56 per share. That equals $1,255 per year.
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 10.80% dividend yield and is led by real estate legend Barry Sternlicht. Starwood Property Trust (NYSE: STWD) is a REIT operating in the United States, Europe, and Australia.
It operates through four segments:
- Commercial and Residential Lending
- Infrastructure Lending
- Property
- Investing and Servicing
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
Wells Fargo has an Outperform rating and a $22 price target.
$10,000 will buy 556 shares, each paying $1.92. That equals $1,070 per year.
TXO Partners
This is an outstanding way to collect a rich 11.10% dividend and play oil and gas from a value angle. TXO Partners (NYSE: TXO) is a master limited partnership focused on the acquisition, development, optimization, and exploitation of conventional oil, natural gas, and natural gas liquid (NGL) reserves in North America.
The company’s acreage positions are concentrated in the Permian Basin of West Texas and New Mexico, the San Juan Basin of New Mexico and Colorado, and the 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, San Juan, and Williston Basins.
TXO Partners’ assets include a 50% interest in Cross Timbers Energy (Cross Timbers).
As an operator, it designs and manages the development, recompletion, or workover of all the wells it operates, and supervises day-to-day operation and maintenance activities. 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 Buy rating with an $18 target price.
$10,000 will buy 793 shares, each paying $1.40. That equals $1,110 per year.
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