As interest rates increase, searching for quality companies with ultra-high dividend stocks is even more vital for income investors looking to deliver on their retirement dreams.
At the beginning of 2022, the S&P 500 yield was 1.27%. At the end of June, it was up 42 basis points to 1.69%. However, over the same period, the U.S. 10-Year Treasury went from 1.63% at the beginning of the year to 2.97% at the end of June, an 82% increase in just six months.
So, if income is your only concern, the Treasury is the better play over one of several index-related ETFs.
However, if you want income and capital appreciation, there are a decent number of opportunities in the index.
What’s the definition of ultra-high dividend stock? Well, at the very least, it’s double the current yield on the 10-year Treasury. That brings us to 6%, more than 3x the index’s yield.
A quick index screen tells me that only six of the 505 constituent stocks in the S&P 500 yield 6% or more. I’ve got to widen the net. The S&P 1500 currently has 50 stocks yielding 6% or more.
Here are the seven ultra-high dividend stocks to invest in if you’re an income investor who doesn’t mind a little capital appreciation mixed in for good measure.
Pioneer Natural Resources
B. Riley Financial
Omega Healthcare Investors
Lumen Technologies (LUMN)
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Lumen Technologies (NYSE:LUMN) currently yields 9.03%. It’s got a 3-year annualized total return of 10.04%.
Lumen owns approximately 500,000 miles of fiber optic cable globally. It provides communication services to the enterprise, wholesale, small business, and residential markets. It used to be called CenturyLink but changed its name and branding in Sept. 2020.
On Aug. 1, Lumen closed the sale of its Latin American operations to an alternative asset manager for $2.7 billion in cash. The company intends to use the proceeds to pay down debt and invest in its growth. Lumen’s U.S. and EMEA (Europe, Middle East, and Africa) customers will be served in Latin America by Cirion, Stonepeak’s portfolio company. The company’s former head of Latin America will run Cirion.
The sale allows Lumen to have its cake and eat it too.
In addition, it’s expected to close the sale of its incumbent local exchange carrier (ILEC) business in the fourth quarter. It sold the business to Apollo Global Management (NYSE:APO) for $6.1-billion plus the assumption of $1.4 billion in debt.
The company is in the middle of a transformation intended to make it a more focused and profitable business. Get paid 9% to wait for the change to take hold fully.
B&G Foods (BGS)
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B&G Foods (NYSE:BGS) currently yields 7.95%. It’s got a 3-year annualized total return of 15.63%.
If you’re wondering what the B&G stands for, it’s Bloch and Guggenheimer. The two families started selling pickles under the B&G brand in 1889. B&G Foods was created in 1996 to buy the brand. Today, 44 brand acquisitions later, it’s a business with $2.10 billion in trailing 12-month (or TTM) revenue.
In early August, it reported second-quarter 2022 results, including a 3.1% increase in sales. Unfortunately, its adjusted net income fell 81.0% to $5.1 million during the quarter. However, for all of 2022, it expects revenues of at least $2.10 billion and adjusted earnings per share (or EPS) of $1.18 at the midpoint of its guidance.
B&G got hit by inflation in the second quarter. It expects these pressures will subside in 2023.
Positive highlights from the quarter include a 22.9% increase in Crisco sales, a 5.9% increase in sales of Green Giant, and a 21.5% increase in Cream of Wheat sales.
There are five analysts currently covering BGS stock. They’re not very high on it, with four rating it “hold” and one an outright “sell.” The highest price target is $27.
Down almost 24% year-t0-date, its price-to-sales ratio is 0.77, lower than it’s been for most of the past decade. This is a sleeper stock for income investors.
Altria Group (MO)
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Altria Group (NYSE:MO) currently yields 7.91%. It’s got a 3-year annualized total return of 6.97%.
It used to be that you could do no wrong owning one of the cigarette stocks. That’s changed in recent times. The tobacco industry has a three-year annualized total return of 5.98%, even worse than Altria’s performance.
Altria’s situation has more to do with the company’s disastrous investment in Juul Labs, the maker of e-cigarettes. At the end of July, Altria cut the value of its investment to $450 million, a sliver of the $12.8 billion it spent to own a 35% stake in the company. It has agreed not to market or invest in competing vaping products. That could easily change.
The traditional cigarette business is in good, if not spectacular shape, generating adjusted EPS of $1.26 in the latest quarter, a penny ahead of the analyst estimate. Its sales fell 6% in the quarter to $6.5 billion. Its Marlboro brand increased its market share in the second quarter to 42.7%.
Its TTM free cash flow through Q2 2022 was $8.09 billion. That gives it an FCF yield of 9.8%. I consider anything above 8% to be in value territory.
Pioneer Natural Resources (PXD)
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Pioneer Natural Resources (NYSE:PXD) currently yields 14.80%. It’s got a 3-year annualized total return of 26.84%.
The independent oil and gas exploration and production company’s yield changes quarterly based on the dividends it pays out. It has a $1.10 base dividend. On an annualized basis, it currently yields nearly 2%. It then pays a variable dividend based on its free cash flow.
In the third quarter, it will pay a $1.10 base dividend and a $7.47 variable dividend for a total payout of $8.57, an annualized yield of 14.8%. As part of its capital allocation program, it bought back $500 million of its stock in the second quarter,
“Pioneer believes this peer-leading return of capital strategy, which combines a strong base dividend, a substantial variable dividend, and opportunistic share repurchases, creates significant value for shareholders,” the company stated in its Q2 2022 press release.
As long as a barrel of West Texas Intermediate (or WTI) goes for $60 or more, shareholders can expect annual dividends per share payments between $10 and $45. That translates to a yield of 5%-20%.
If you think oil prices will remain high for at least the next few years, PXD is worth considering.
Riley Financial (RILY)
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Riley Financial (NASDAQ:RILY) currently yields 6.98%. It’s got a 3-year annualized total return of 54.87%.
The Los Angeles-based investment bank traded over $90 as recently as Jan. 3. It’s down more than 34% YTD. The entire investment banking industry has taken a hit in 2022. Yet investors shouldn’t be turned off from investing because of a dip in business. This is a normal occurrence. It will rebound.
In the meantime, the company has an exciting combination of fee-generating revenue and long-term investments. It even has an operating segment that provides retail liquidations, turnaround management, and bankruptcy restructurings when times get tough.
Historically, and to a certain extent today, the company’s bread-and-butter is small-cap debt and equity offerings. This area covers approximately 400 smaller companies for its more than 1,000 institutional clients. In 2021, it did 146 at-the-market issuances valued at $9.22 billion. That was second only to Jefferies Financial Group (NYSE:JEF).
Through its Principal Investments in United Online, Magic Jack, Marconi Wireless, and Lingo, it generated $128.4 million in revenue from these control investments with $28.8 million in segment income. Its Brands segment generated $22.9 million in dividend income from Hurley (41% ownership) and Justice (43%) over the past 12 months.
It’s nice to have when the investment banking business goes into sleep mode.
Omega Healthcare Investors (OHI)
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Omega Healthcare Investors (NYSE:OHI) currently yields 8.02%. It’s got a 3-year annualized total return of 2.78%.
You’re probably wondering why I’m recommending a stock with such a lousy total return over the past three years. I mean, if you take out the quarterly payment of 67 cents — it raised the quarterly payment in Nov. 2019 from 66 cents — OHI stock lost about 5% per year over the past three years.
The real estate investment trust (or REIT) provides financing and capital to the long-term healthcare industry in the U.S. and U.K. As of June 30, the REIT had 943 healthcare facilities in 42 states and the U.K. operated by 65 third-party companies. All operators are on triple-net leases or carry mortgage loans on the properties.
Covid-19 hasn’t been easy on healthcare operators, especially those like Omega that focus on skilled nursing facilities (SNFs) and assisted living facilities (ALFs).
“2021 proved to be a challenging year for the senior healthcare industry, as the global pandemic and its impact on both occupancy and labor continued to impinge on the financial capacity of many of our operators… As a result, a few of our operators were unable to pay rent in the second half of the year,” CEO Taylor Pickett stated in the 2021 letter to shareholders.
However, as Pickett stated in the Q2 2022 press release, occupancy and labor issues are getting better, suggesting the long-term prognosis for operators is good.
I couldn’t agree more.
Boise Cascade (BCC)
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Boise Cascade (NYSE:BCC) currently yields 0.66%. It’s got a 3-year annualized total return of 41.91%.
The first thing I want to point out about the Boise-based producer of engineered wood and plywood is that the stock qualifies for this list of ultra-high dividend stocks because of its consistent payment of special dividends.
In June, it paid shareholders an extra $2.50 a share $2.50 a share to shareholders. In 2021, it paid out $5 for two special dividends — $3 a share in December and $2 in July. Between 2018 and 2020, it paid out a total of $3.60 in special dividends.
So, it paid out $11.10 in special dividends over the past five years. Based on 39.45 million shares outstanding, that’s almost $438 million or 15% of its market capitalization.
On July 25, the company completed its acquisition of the Coastal Plywood Company. The company paid $512 million for the provider of plywood, lumber, and treated wood products along the Eastern Seaboard. It acquired the company to support its sales in the Southeast.
The market for its engineered wood products isn’t going away anytime soon.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.