3 super high yield dividend stocks that need to be bought

More often than not, dividend-paying stocks are the glue that holds large portfolios together. In 2013, JP Morgan Asset Management published an analysis comparing the annualized return of publicly traded companies that initiated and increased their payments between 1972 and 2012 with publicly traded companies without dividends during the same period. The report found that dividend-paying stocks hovered around non-paying stocks by a large margin (9.5% annualized vs. 1.6%).

These figures should come as no surprise to anyone. Companies that pay a dividend are often profitable, time-tested, and have trustworthy management teams.

Unfortunately, dividend yield and risk are often correlated, and in general, the higher the yield, the higher the risk. Since the return is simply a function of the payout relative to the stock price, a company with a struggling or failing business model can deliver an unusually high return. This means that very high yielding stocks – that is, returns that I arbitrarily define as 8% or more – can cause more problems than they are worth.

But not all super high yielding dividend stocks are bad news. I have scoured the minefield of double-digit and high-yield companies, and three stand out as particularly attractive, given their track record of long-term profitability.

If you want big income without much risk, the following three super high yielding dividend stocks are just waiting to be bought.

Annaly Capital Management: return of 10.8%

Few industries have been more universally hated in recent years than Mortgage Real Estate Investment Trusts (REITs) – but that is about to change.

The business model of mortgage REITs is fairly straightforward to understand. These are companies that borrow money at a short-term rate and typically use leverage to acquire higher-yielding assets that have a long-term payout. In the case of Annaly Capital Management (NYSE: NLY), we are talking about a company that buys mortgage backed securities (MBS). The difference between the return that Anna generates on these mortgage-backed securities and the short-term rate that she pays on her borrowings is her net interest margin. The larger this margin, the more profitable Annaly Capital can be.

Last year we saw the yield curve briefly invert, as yields on short-term bonds exceeded those on long-term bonds. This is terrible news for Annaly’s net interest margin. However, economic recoveries generally produce a steepening yield curve. This is where long-term returns increase dramatically, widening the gap between short-term and long-term returns. In other words, we’ve come to the right place where Annaly is starting to see her earning potential explode.

In addition, Annaly Capital Management almost exclusively purchases agency-only assets – mortgage-backed securities that are guaranteed by the federal government in the event of default. Although agency-only assets have lower returns than non-agency assets, the security provided by these agency assets is what allows Annaly to use leverage to her advantage.

With the Federal Reserve intending to keep interest rates at or near historically low levels until 2023, the table is set for Annaly Capital Management to deliver significant revenue to its shareholders.

Altria Group: yield 8.5%

US tobacco giant is another super high yielding dividend begging to buy Altria Group (NYSE: MO).

It’s no secret that tobacco stocks face an uphill battle. US regulators are fully aware of the dangers associated with the consumption of tobacco products and have long emphasized these concerns to the public. This dropped the adult smoking rate in the United States from about 42% in the mid-1960s to just 14% in 2019. That’s great news from a health standpoint, but not so much. good news for Altria, the company behind the famous Marlboro brand.

However, one thing Altria always has in its favor is its exceptional pricing power. Because nicotine is an addictive chemical, Altria has never had a problem passing price increases on to consumers. Despite continued declines in the volume of cigarette shipments, Altria’s revenues continue to grow, primarily due to higher prices.

Altria also offers smoke-free products that could become long-term growth engines. For example, the company plans to introduce the IQOS heated tobacco system to a handful of new markets. He also saw his distribution of nicotine-free oral product without tobacco leaves. sure! gobble up a 2.1% share of the oral tobacco category.

Altria even has exposure to the North American cannabis industry. In March 2019, she made a $ 1.8 billion equity investment in Cronos Group, getting a 45% stake in return. Given Altria’s extensive knowledge of product development and marketing to smokers, the duo are expected to work on cannabis vaping products that can eventually be marketed across North America.

Altria has plenty of room for growth – with a solid 8.5% annual return.

ExxonMobil: yield 8.5%

Income seekers would also benefit from considering the mother of all oil stocks, ExxonMobil (NYSE: XOM), which like Altria also analyzes a delicious 8.5% return.

It doesn’t have to sound like a broken record, but the oil industry itself is going through many struggles. The 2019 coronavirus disease pandemic (COVID-19) caused a historic short-term drop in demand for crude oil, and even briefly sent West Texas Intermediate crude futures into negative territory. For ExxonMobil, falling crude oil prices resulted in significant quarterly losses.

But amid the eruption of US shale bankruptcies, Wall Street and investors seem to be neglecting the “integrated” component of ExxonMobil’s oil and gas operations. While there is no doubt that the company’s upstream drilling operations generate the best margins, the company has downstream refining and petrochemical assets specifically to offset lower crude prices. If the price of a barrel were to stay below its recent four-year average, we would expect consumer and business demand for petroleum products to increase, ultimately increasing cash flow from downstream assets of ExxonMobil.

The company also has many levers it can pull as an integrated oil and gas giant. For example, ExxonMobil has cut its capital spending budget from $ 10 billion in 2020 to $ 23 billion, and plans to further cut its capital spending (capex) in 2021 from $ 16 billion to $ 19 billion. . The company has also suspended pension contributions and downsized to compensate for declining demand in the near term.

Yet even with an investment budget potentially halved, ExxonMobil’s plans for the Payara project off Guyana remain on track. When completed in 2024, this expansion is expected to add approximately 220,000 barrels of oil production per day.

Oil stocks may have struggled in 2020, but they’re not going anywhere. This makes ExxonMobil and its hefty dividend an intriguing buy.