Boomers Are Piling Into These 5 High-Yield Dividend Stocks, and None Are Yield Traps

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 20 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.

Investors, especially Boomers, looking to add as much passive income as possible to Social Security or pension checks, are often enticed into buying companies that pay dividends, sometimes more than 10%, 15%, or higher. In many cases, they end up getting burned by what Wall Street calls “yield traps.” A yield trap appears when a stock’s dividend yield looks unusually high only because the share price has collapsed amid a failing business or an unsustainable payout ratio.

We screened our 24/7 Wall St. high-yield research database. We found five companies below that avoid that risk, as recurring operating cash flow, strong balance sheets, and durable underlying businesses fully support their large distributions. The five stocks we found are all companies we have covered for years here at 24/7 Wall St., and are large-cap stocks and partnerships that Wall Street analysts and income professionals widely consider safe from being yield traps. Plus, all five are rated Buy by top Wall Street firms that we cover.

Ares Capital

Ares Capital (NASDAQ:ARCC | ARCC Price Prediction) specializes in providing financing solutions for the middle market, and with eight analysts rating it a Buy and a 9.64% dividend yield, it is a solid idea now. This high-yielding business development company (BDC) specializes in acquisitions, recapitalizations, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions for middle-market companies. It is widely considered one of the highest-quality BDCs due to its massive scale and defensive track record through multiple economic cycles. The company has a long history of regular payouts and supplemental distributions since its 2004 market entry.

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 annual EBITDA between $10 million and $250 million. 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.

Truist Financial has a Buy rating with a $21 target.

Energy Transfer

Energy Transfer (NYSE:ET) 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 6.27% distribution yield. Energy Transfer 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 blew out second-quarter earnings and appears poised to reach new highs.

The company functions as an energy tollbooth, moving natural gas and liquids across thousands of miles of infrastructure. Because it charges by volume rather than relying directly on volatile oil and gas prices, its cash flow is highly predictable.

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 (NGLs), 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, formerly known as Energy Transfer Partners, the company also owns Lake Charles LNG; the general partner interests, the incentive distribution rights, and 28.5 million standard units of Sunoco (NYSE: SUN); and the public partnership interests and 39.7 million standard units of USA Compression Partners (NYSE: USAC).

J.P. Morgan has an Overweight rating with a $25 target price.

Enterprise Products Partners

Another top midstream giant, this American midstream natural gas and crude oil pipeline company is headquartered in Houston, Texas. Enterprise Products Partners (NYSE:EPD) is one of the most extensive publicly traded energy partnerships and pays a very reliable 5.60% dividend.

The company’s debt-to-EBITDA ratio ranges from 3.1x to 3.4x, which is moderate for a midstream energy company, and its interest coverage ratio is 5x. Enterprise Products Partners generates strong free cash flow, with operating cash flow of about $8.8 billion, resulting in about $4.2 billion in free cash flow annually after deducting capital expenditures. Another significant benefit for shareholders is that most corporate debt is fixed-rate, limiting the risk of rising interest rates.

This company has a strong track record in corporate America, raising its distribution every year for nearly three decades. It retains billions in organic free cash flow after paying investors to self-fund its growth projects, which prevents it from drowning in high-interest debt.

Enterprise Products Partners provides various midstream energy services, including:

• Gathering
• Processing
• Transporting and storing natural gas, NGLs, and fractionation
• Import and export terminalling
• Offshore production platform services

The company has four reportable business segments:

• Natural Gas Pipelines and Services
• NGL Pipelines and Services
• Petrochemical Services
• Crude Oil Pipelines and Services

One reason many analysts like the stock might be its distribution coverage ratio, which is well above 1x, making it relatively less risky among the MLPs.

UBS has a Buy rating and a $45 target price.

Verizon

Verizon Communications (NYSE:VZ) is an American multinational telecommunications company that continues to offer tremendous value. It trades at 9.13 times its estimated 2026 earnings and pays a 5.52% dividend. Verizon provides a range of communications, technology, information, and entertainment products and services to consumers, businesses, and government entities worldwide.

Verizon’s trailing 12-month interest coverage ratio is 4.6× to 5×, providing ample cushion for dividend payments. With a very predictable revenue stream from telecom services, the company has less exposure to commodity cycles. In addition, its scale helps with financing and absorbing shocks. Public reports indicate that management has increased the dividend for 20 consecutive years and expects at least $21.5 billion in free cash flow this year.

The company is often mistakenly labeled a value trap because its revenue growth is slow. However, its massive customer base treats cellular data like a utility bill, ensuring a steady stream of defensive cash flow, and its comfortable dividend coverage ratio makes a payout cut highly unlikely.

It operates in two segments. The Consumer segment provides wireless services across the United States through Verizon and TracFone networks, as well as through wholesale and other arrangements. It also provides fixed wireless access (FWA) broadband through its wireless networks and related equipment and devices, such as:

• Smartphones
• Tablets
• Smartwatches
• Other wireless-enabled connected devices

The segment also offers wireline services in the Mid-Atlantic and northeastern United States through its fiber-optic network, Verizon Fios product portfolio, and copper-based network.

The Business segment provides wireless and wireline communications services and products, including:

• FWA broadband
• Data
• Video and conferencing
• Corporate networking
• Security and managed network
• Local and long-distance voice

Network access services to deliver various IoT services and products to businesses, government customers, and wireless and wireline carriers in the United States and internationally.

TD Cowen has a Buy rating with a $56 target price.

VICI Properties

VICI Properties (NYSE:VICI) is a New York City-based real estate investment trust that specializes in casino and entertainment properties. It offers a stellar dividend yield of 7.02% and is one of Wall Street’s top picks in the net lease group. It suits more conservative investors seeking gaming exposure and a substantial dividend. The stock is frequently flagged, alongside other stocks in this post, in dividend screens as a “safer” S&P 500 Dividend Dog with an attractive yield backed by long-term triple-net leases. Its anchor tenants operate massive cash-flow engines and have historically paid rent through all economic cycles. Its triple-net lease structure forces tenants to pay all maintenance, insurance, and taxes, shielding the company from overhead inflation.

VICI Properties has one of the largest portfolios of market-leading gaming, hospitality, and entertainment destinations, including three iconic entertainment facilities on the Las Vegas Strip:

• Caesars Palace Las Vegas
• MGM Grand
• The Venetian Resort Las Vegas

VICI Properties owns 93 experiential assets across a geographically diverse portfolio of 54 gaming properties and 39 other experiential properties across the United States and Canada. The portfolio comprises about 127 million square feet and includes about 60,300 hotel rooms, plus over 500 restaurants, bars, nightclubs, and sportsbooks. Gaming revenue has proven remarkably resilient in recent downturns, and its triple-net lease structure means it collects rent regardless of swings in tenant profitability.

VICI Properties has a growing array of real estate and financing partnerships with leading operators in other experiential sectors, including:

• Bowlero
• Cabot
• Canyon Ranch
• Chelsea Piers
• Great Wolf Resorts
• Homefield
• Kalahari Resorts

VICI Properties also owns four championship golf courses and 33 acres of undeveloped or underdeveloped land adjacent to the Las Vegas Strip.

Cantor Fitzgerald has an Overweight rating with a $32 price objective.

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