My 4 favorite ultra-high-yield dividend stocks to buy for 2024

By | December 24, 2023

Pipeline welder

Pipeline welder

Income investors don’t have to settle for meager dividends. There are far too many stocks offering extraordinary returns of 6% or more – a level I would categorize as ultra-high.

Admittedly, some of these stocks are too risky for many investors. But not all of them are problematic. Here are my four favorite ultra-high-yield dividend stocks to buy for 2024 (ranked in alphabetical order).

1. Ares Capital

Ares Capital (NASDAQ: ARCC) is considered the largest publicly traded business development company (BDC). To be exempt from paying federal taxes, BDCs must return at least 90% of their income to shareholders in the form of dividends. Ares Capital has generated a lot of profit in this way: the dividend yield is currently above 9.8%.

Can Ares Capital maintain its dividend at such an ultra-high level? I think so. The company continues to generate strong profits. It also has an excellent track record of more than 14 years of stable to increasing dividends.

What I especially like about Ares Capital is that it has consistently delivered higher total returns than the S&P500 long-term. The need for capital from mid-market companies combined with Ares Capital’s solid risk management process should allow this stock to continue its winning ways going forward.

2. Energy transfer LP

Energy transfer‘S (NYSE:ET) The company’s slogan is “Moving America’s Energy.” That is exactly what the company is doing with its almost 200,000 kilometer long pipeline. The limited partnership also transfers quite a bit of money to its partners through quarterly distributions. Energy Transfer’s distribution yield is over 9.1%.

These benefits must continue to flow and grow. Energy Transfer expects to increase distribution by between 3% and 5% per year. The midstream energy leader generates more than enough cash flow to finance distributions.

I’m not too concerned that Energy Transfer’s solid earnings this year will prevent it from maintaining momentum into the new year. The US economy appears to be in good shape heading into 2024. Energy Transfer’s valuation also remains attractive with a price-to-earnings ratio of less than 8.3.

3. Business product partners

I also really like another midstream energy stock — Partners for business products (NYSE:EPD). The company operates more than 50,000 miles of pipelines that transport crude oil, natural gas, natural gas liquids, petrochemicals and other refined products.

Enterprise’s distribution yield is currently just 7.7%. What’s really impressive, however, is that the company has expanded its distribution at a compound annual growth rate of 7% for 25 consecutive years.

An additional big plus for Enterprise Products Partners is their consistency. The company has generated double-digit return on invested capital (ROIC) and strong cash flow per unit during both high and low seasons.

4. Verizon Communications

Verizon Communications (NYSE: VZ) is undoubtedly the best known of these dividend stocks. It is a leader in the telecommunications industry with operations around the world. Verizon is also a stock that income investors have loved for years. With the company’s dividend yield over 7.1%, income investors still love Verizon.

There are two main reasons why I included Verizon on the list of my four favorite ultra-high yield dividend stocks. One of these is its track record of dividend increases. In September, Verizon announced its 17th consecutive year of dividend increases.

The second is that the company’s free cash flow continues to grow strongly, which should keep these dividend increases coming. Just as importantly, this trend shows that Verizon can successfully navigate a challenging telecom market. I think this is an ultra-high yield dividend stock built for the long term.

Should You Invest $1,000 in Verizon Communications Now?

Before purchasing stock in Verizon Communications, consider the following:

The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Verizon Communications wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor service has more than tripled the return of the S&P 500 since 2002*.

View the 10 stocks

*Stock Advisor returns December 18, 2023

Keith Speights holds positions at Ares Capital and Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners and Verizon Communications. The Motley Fool has a disclosure policy.

My 4 Favorite Ultra-High-Yield Dividend Stocks to Buy for 2024 was originally published by The Motley Fool

Leave a Reply

Your email address will not be published. Required fields are marked *