If you’re yearning to dip your toes into the stream of passive income to fuel your retirement dreams, fret not about lacking a hefty sum to invest. In today’s market, a mere $100 can net you shares in three dividend-paying stocks boasting yields of 9.5% or more at current prices.
The typical stock featured in the illustrious S&P 500 index has been proffering a modest 1.55% yield. But when dividend stocks start flaunting yields that surpass the benchmark average sixfold, it’s a signpost signaling market concerns about the underlying business’s ability to fulfill and boost dividend pledges.
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All three entities in the dividend race sport a track record of honoring their dividend commitments. While perhaps not guaranteeing swift dividend hikes, the trajectory toward positive movement in the foreseeable future isn’t a far-fetched expectation.
The Old-School Stalwart: British American Tobacco
Despite a decades-long decline in cigarette sales volume, British American Tobacco (NYSE: BTI) remains steadfast in consistently upping its dividend. Presently, it boasts a 9.8% yield at recent prices. For most American stakeholders, the quarterly disbursements may oscillate with currency exchange rates, but the payout has seen growth every year since 2007 in British pounds.
In a noteworthy move last year, British American Tobacco caught attention by marking down the value of its U.S. brands like Newport and Camel by over $30 billion.
Fortunately for income-seeking investors, the noncash charges shouldn’t impede the company’s ability to steadily elevate its dividend commitment. Amidst a 3.1% growth in total revenue last year at constant currency exchange rates, the bottom line scaled even higher with adjusted earnings per share surging by 5.2% under these same conditions.
While sales in combustible cigarettes are dwindling, overall nicotine delivery is on the upswing. British American Tobacco’s e-cigarette product, Vuse, stands as one of the three brands currently sanctioned by the FDA for trading in the U.S. market. Sales of Vuse and other new category products surged by 15.6% last year.
The Tobacco Titan: Altria Group
Altria Group (NYSE: MO) holds the crown in the U.S. with the iconic Marlboro brand, offering a generous 9.7% dividend yield at existing prices. Despite the ebb in combustible tobacco sales, it has managed to elevate its dividend payment 58 times over the past 54 years.
In a strategic maneuver last year, Altria divested its initial foray into e-cigarettes, Juul, and acquired NJOY, the sole pod-based e-cigarette system endorsed by the FDA.
During the fourth quarter, Altria dispatched over 11 million NJOY pods. While this just scratches the surface of the illicit market offering favored fruity flavors to adults and teens, NJOY sales have the potential to ascend in 2024. The FDA initiated joint efforts with Customs and Border Protection to intercept illicit vaporizer shipments late last year.
Although combustible tobacco sales are tapering, the surge in non-combustible sales alongside share buybacks lay the groundwork for per-share growth. The management anticipates a 1% to 4% rise in earnings per share this year.
The Ace of Ares: Ares Capital
Ares Capital (NASDAQ: ARCC) belongs to the exclusive club of business development companies (BDCs), extending loans to firms too vast for small business loans yet too diminutive to engage with major banks.
Popular among income-hunters, these specialized entities circumvent income taxes by disbursing nearly all their profits to investors as dividends.
With a solid track record of dishing out stable quarterly dividends spanning 14 years, Ares Capital presents a 9.5% yield at present prices. Though not increasing its payout as regularly as the tobacco behemoths, it has ramped it up by 20% over the past three years.
Ares Capital can shoulder a hefty dividend outflow due to the perennial hunger for capital among American middle-market companies willing to pay escalating rates, which soared further in 2022 and early 2023. The average return on Ares Capital’s debt investments vaulted to 12.5% last year from 11.6% the previous year.
Boasting a roster of 505 companies, almost all backed by private equity sponsors, Ares Capital’s relationships with its underwriters, private equity entities, and the midsize businesses it funds serve as invaluable assets. Furthermore, the colossal BDC basks in an investment-grade credit rating.
The dividends from Ares Capital may not mount swiftly, but with a robust upfront yield, there’s no necessity for a meteoric rise for long-term investors to savor market-beating gains down the line.
Should you plunge $1,000 into British American Tobacco right this instant?
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Cory Renauer holds positions in Ares Capital. The Motley Fool advocates for British American Tobacco P.l.c. and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool maintains a disclosure policy.
The perspectives and opinions shared herein are the author’s own and do not necessarily mirror those of Nasdaq, Inc.
