Chasing yield is risky. High-yield dividend stocks falling or failing businesses will often exhibit exorbitant rates. Investors might receive above-average income for a time, but it will be a terrible investment, resulting in lower total returns.
Fortunately, that doesn’t apply to all high-yield dividend stocks. Some companies sporting yields north of 6%, 7%, or even higher can offer investors generous income that bolsters the capital appreciation they produce.
Dividend stocks have generally proved to be superior investments in the long run. The analysts at the asset management wing of JPMorgan Chase found that over the four decades between 1972 and 2012, companies that initiated a dividend and then increased it over time beat non-payers by six-to-one. Dividend stocks returned 9.5% versus 1.6% returns for non-payers and did so with lower risk.
The following three high-yield dividend stocks sport yields averaging 10% annually. If you want to generate $5,000 in dividend income annually, invest $50,000 divided equally between them.
AGNC Investment (AGNC)
Except for a brief period in 2021 following the global pandemic, AGNC Investment (NASDAQ:AGNC) has offered a yield of over 10% annually. Today, the yield stands at 14.1% annually.
The mortgage real estate investment trust (REIT) differs from its peers. AGNC invests almost wholly in high-yield long-term assets, typically agency mortgage-backed securities (MBS). Agencies are government-sponsored entities like Fannie Mae, Ginnie Mae and Freddie Mac. The full faith and credit of the U.S. government backs them.
The mREIT’s money-making strategy is fairly simple. It borrows money at low, short-term rates and invests it in MBS assets. Considering the Federal Reserve’s unprecedented interest-rate hike policy beginning in 2021, it is understandable why AGNC Investment has been down 45% since then.
However, with the possibility of inflation being tamed, Wall Street believes the Fed may now begin a policy of lowering rates once again. Those cuts will flow to the mREIT’s bottom line, boosting its stock.
AGNC shares are up 5% year-to-date on the hope rate cuts will begin sooner than expected. It makes AGNC Investment a high-yield dividend stock to buy today.
Energy Transfer (ET)
Midstream oil and gas player Energy Transfer (NYSE:ET) is the second high-yield dividend stock to buy. It has become one of the largest midstream energy companies by owning a significant network of pipelines and storage facilities nationwide.
Energy Transfer’s extensive reach allows it to move oil and gas supplies from just about anywhere in the lower 48 states. Hydrocarbons, including natural gas, natural gas liquids (NGLs), crude oil and refined products, can be transferred to both the east and west coasts, the Canadian border and the Gulf of Mexico.
The midstream stock generates substantial cash flows. Over the past five years, free cash flow (FCF) has expanded at a compound annual growth rate (CAGR) of over 20%. Those cash profits allow Energy Transfer to pay a reliable dividend that yields 7.9% annually.
One note of caution. Because ET is organized as a master limited partnership, there are complex tax issues investors should consider before buying in. Yet, if it is right for your situation, Energy Transfer is a high-yield dividend stock that deserves a place in your portfolio.
Altria (MO)
Tobacco giant Altria (NYSE:MO) is the third high-yield dividend stock you should invest in. This Dividend King has paid dividends to shareholders for 96 consecutive years and has increased the dividend every year since 1969. The dividend yields 8.4% annually.
Although smoking is on a secular decline, Altria is investing heavily in reduced-risk products, including electronic cigarettes, nicotine pouches and chewing tobacco.
Oral tobacco revenue grew 4.3% in the first quarter net of excise taxes on the strength of its own brand of nicotine pouches, which surged 32% year-over-year. The shipment of its NJOY e-cig brand consumables was 10.9 million units, while the number of devices was 1 million. NJOY’s market share rose to 4.3%.
Despite still trailing industry leaders Vuse and Juul by a wide margin, Altria just closed its first year of ownership following its acquisition. Look for Altria to ramp up marketing and sales of the e-cigarette.
Altria stock is up 23% year-to-date, and the highly profitable business is looking for further growth in its dividend payment.
On the date of publication, Rich Duprey held a LONG position in MO stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.