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For more than a century, Wall Street has been a wealth-building machine. There are countless strategies that can make investors rich over the long term, but few are more successful from a return perspective than buying and holding dividend stocks.
The undeniable appeal of income stocks is that they outperform. Dividend-paying companies have returned 9.18% annually over the past half-century (1973-2022), according to a report published last year by The Hartford Fund in collaboration with Ned Davis Research. By comparison, publicly traded companies that don’t offer dividends have struggled for a mediocre annualized return of 3.95% over the same 50 years.
These results are not surprising. Companies that pay regular dividends to shareholders are often recurringly profitable, have a proven track record, and can provide transparent long-term growth guidance. These are exactly the types of businesses that are expected to increase in value over time.
Image source: Getty Images.
But no two dividend stocks are the same. High-yield stocks are attractive, but they can also come with additional risks. But this doesn’t mean all super-high-income stocks are out of the picture.
If you want an ultra-safe $1,000 in dividend income in 2024, all you need to do is invest $9,750 (split equally three ways) in these three ultra-high yield stocks: 10.28%!
AT&T: Yield 6.43%
One of the first ultra-reliable ultra-high dividend stocks that can help you generate $1,000 in income in 2024 from an initial investment of $9,750 (divided into 3 stocks) is a telecommunications giant. AT&T (T 0.91%).
While Wall Street is firmly in a new bull market, AT&T is lagging far behind. This is a feature investors are concerned about following the July report. wall street journal It is argued that traditional telecommunications companies using lead-coated cables could face significant environmental and health liabilities, as well as replacement costs.
Not surprisingly, AT&T WSJIt disputed his claims, pointing out that there is no evidence that lead-coated cables pose an environmental hazard or threat to people. Additionally, potential liability is likely to be determined by the U.S. court system, which is often slow to issue decisions. In short, this is a relatively early start for AT&T and its peers.
What current and potential investors should take note of is AT&T’s steadily improving performance. Upgrading networks to support 5G download speeds is driving high-margin data consumption. Churn rates remain near historic lows because wireless service is essentially considered a basic necessity.
Additionally, AT&T ended 2023 with at least 1 million net broadband customers for the sixth year in a row. The ability to offer his 5G speeds to residential customers and businesses has proven to be a powerful tool to facilitate service bundling and increase the company’s operating cash flow.
Another reason AT&T is a solid dividend stock is because its balance sheet has improved significantly since selling its content division WarnerMedia.When the WarnerMedia spinoff was created by merging with Discovery. warner bros discovery, AT&T received more than $40 billion in interests, most of which involved the new media entity assuming some debt previously held by AT&T. Since March 31, 2022, AT&T’s net debt has decreased from $169 billion to $128.9 billion. With greater financial flexibility, AT&T’s 6.4% yield is almost guaranteed to be safe.
Alliance Resource Partner: Yield 13.61%
The second highest income stock that can deliver $1,000 in ultra-safe dividend income in 2024 from a $9,750 starter investment (split in 3) is a coal company. alliance resource partner (ARLP -1.08%).
When this decade began, it was widely expected that clean energy solutions such as wind and solar would take hold and ensure that dirty fuel sources such as coal became obsolete. But the COVID-19 pandemic changed everything. As unprecedented demand uncertainty forces global energy companies to cut capital spending, coal is stepping in to fill the production gap and meet growing global demand needs.
Additionally, rapidly rising interest rates are making it less attractive for energy giants to borrow money to expand production. Existing coal producers are less affected by rising interest rates than oil and gas producers.
There’s no doubt that Alliance Resource Partners is benefiting from historically high coal sales prices per tonne, but the real beneficiary is management’s forward-looking approach. The company regularly locks in production at favorable prices for up to four years in advance. As of late January 2024, the company had already priced and committed 93% of its estimated production (midpoint of guidance) of 34.9 million tonnes for the current year, with an additional 15.6 million tonnes heading into 2025. is planned. Helps ensure predictable operating cash flow.
It’s also a good time to note that Alliance Resource Partners has expanded production conservatively and avoided the pitfalls of many of its peers, such as digging deep into debt. Although it ended 2023 with net debt of $277.3 million, its net leverage ratio is modest at 0.31. Additionally, the company plans to complete a number of projects in his 2024 year, which should significantly reduce capital expenditures next year.
Additionally, Alliance Resource Partners expanded its revenue channels to include oil and natural gas royalty rights. As long as the supply of traditional energy commodities is constrained, there is a good chance that the prices of these basic commodities will rise or increase. This should lead to higher earnings before interest, taxes, depreciation and amortization (EBITDA) for the company’s oil and gas royalty division.
Image source: Getty Images.
Pennant Park Floating Rate Capital: Yield 10.79%
The third ultra-high yield stock that can help you take home $1,000 in dividend income in 2024 from your $9,750 starting investment (divided into three equal parts) is Business Development Company (BDC). Pennant Park Floating Rate Capital (PFLT -2.27%). Pennant Park pays a large dividend every month.
Without getting too complicated, BDCs seek to invest in debt and/or equity (common stock and preferred stock) of middle market companies. I’m talking about small, generally unproven private companies. Despite owning nearly $161 million in various common and preferred stocks as of the end of September, Pennant Park primarily focuses on debt, as it held $906.3 million in debt securities. It has become a BDC.
The reason management decided to focus on bond trading is simple: yield. Small, unproven companies typically have limited options when accessing traditional debt and credit markets. When these small businesses enter into financing deals, they typically receive interest rates that are higher than the market average. If these middle market companies pay their interest on time, it can result in huge investment returns for companies like Pennant Park Floating Rate Capital.
The best part of Pennant Park’s operating model is that its fixed income investment portfolio is 100% floating rate. In other words, each time the Federal Reserve adjusts the federal funds target rate, it will affect the weighted average yield that Pennant Park receives on its outstanding loans. The weighted average yield on Pennant Park’s bond investments jumped from 7.4% to 12.6% in the two years ending September 30, 2023, due to the Federal Reserve’s most aggressive rate hike cycle in 40 years.
Despite Pennant Park’s focus on small or unproven private companies, the number of late payments is very low. At the end of September, less than 1% of the company’s bond and securities portfolio was accruing interest. This is proof that proper vetting was done before the loan was given the green light.
Additionally, 99.99% of our debt securities portfolio is first lien loans. First-lien debtors are at the front of the line when a borrower seeks bankruptcy protection. Management has done a great job of positioning the company to preserve capital while maximizing profits.
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