Smart Dividend Investing: Top Picks for 2025
One of the best strategies for building wealth on Wall Street is buying and holding dividend stocks. These investments have a strong track record and can help long-term investors meet their financial goals.
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Companies that regularly pay dividends to shareholders often share certain characteristics: they typically generate profit consistently, boast a well-established history, and possess a clear outlook for long-term growth. This indicates that such businesses are likely to appreciate over time.
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Dividends have a notable history of outperforming non-dividend stocks. A study by Hartford Funds, cited in The Power of Dividends: Past, Present, and Future, found that from 1973 to 2023, dividend-paying stocks achieved an average annual return of 9.17%, more than double the 4.27% return of non-payers. Notably, dividend stocks have shown to be less volatile compared to the S&P 500.
This insight is particularly relevant given that current stock market valuations are among the highest on record, suggesting that investing in reliable dividend payers could be a savvy move for 2025.
Top Ultra-High-Yield Dividend Stocks for 2025
Here are three ultra-high-yield dividend stocks, each offering an average yield of 8.53%. These selections are considered safe investments for the upcoming year.
1. Pfizer: 6.72% Yield
First on the list is pharmaceutical giant Pfizer (NYSE: PFE). Despite recent declines in sales from COVID-19 therapies, the company is in a stronger position than at the start of the decade.
Sales from its COVID-19 products, Comirnaty and Paxlovid, have fallen from over $56 billion in 2022 to an estimated $8.5 billion in 2024. However, this drop represents a significant revenue source that did not exist before. Pfizer’s sales are projected to exceed $19 billion, marking a growth of about 46% based on its guidance for 2024.
Moreover, the company’s diverse product lines outside of COVID-19 treatments are growing organically. Investors may be overly focused on the dip in pandemic-related sales and overlooking Pfizer’s strong performance in oncology and specialty care.
Another bonus for investors is Pfizer’s December 2023 acquisition of cancer-drug developer Seagen, which further enhances its oncology portfolio and should yield significant cost savings moving forward.
In addition, Pfizer operates in a defensive sector; regardless of economic conditions, healthcare demands remain constant. This creates a level of cash-flow predictability that can provide security to investors. The stock’s yield is attractive, approaching 7%, with shares trading at less than 9 times its projected earnings per share (EPS) for 2025.
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2. Annaly Capital Management: 13.14% Yield
The second noteworthy pick is Annaly Capital Management (NYSE: NLY), a mortgage real estate investment trust (REIT) that has been delivering impressive yields. Although its yield exceeds 13%, it has maintained an average yield of about 10% over the past twenty years.
Mortgage REITs often face challenges as they borrow at lower short-term rates to invest in higher-yielding long-term assets. Annaly has been affected by the recent rate hikes imposed by the Federal Reserve but could see improvements as the Fed moves to lower rates again.
Historically, Annaly has performed well when interest rates are eased, allowing it to expand its profit margins. With the Fed’s current approach, investors can expect a more favorable environment for mortgage-backed securities (MBS) held by Annaly, as higher yields on these securities may improve profitability.
Additionally, Annaly primarily focuses on agency securities, which have federal backing in case of defaults, providing an extra layer of security for its investments and ensuring its attractive yield.
3. Realty Income: 5.72% Yield
Lastly, Realty Income (NYSE: O) is a solid choice as a retail REIT. Realty Income pays dividends monthly and has consistently increased its payouts for 109 consecutive quarters—over 27 years.
The forthcoming easing of monetary policy could also benefit Realty Income similar to Annaly, making it an appealing option for investors seeking reliable income.
Realty Income: An Attractive Option as Treasury Yields Rise
Why Investors Are Eyeing Realty Income Amid Changing Interest Rates
Higher Treasury yields are drawing income seekers away from high-yield stocks and toward safer government bonds. However, with central banks reducing interest rates, stocks like Realty Income could see a resurgence in interest.
Realty Income has proven to be a stable investment for decades due to its impressive commercial real estate (CRE) portfolio. As of the end of September, the company owned nearly 15,500 CRE properties, with around 90% deemed “resilient to economic downturns and/or insulated from e-commerce pressures.” Realty Income primarily invests in standalone stores that sell essential goods and services, ensuring that rental delinquencies are hardly a concern.
Strong Occupancy Rates Bolster Realty Income’s Stability
Another strong point for Realty Income is its high occupancy rates. The company reported an occupancy rate of 98.7% at the end of September, with an average of 98.2% since the 1900s. In contrast, the median occupancy rate for S&P 500 REITs this century sits at a lower 94.2%. This highlights Realty Income’s ability to attract and retain tenants effectively.
Diversification Fuels Growth Opportunities
While its retail-focused CRE model is currently thriving, Realty Income is not resting on its laurels. The company acquired Spirit Realty Capital in January, enhancing its property portfolio. Additionally, a joint venture with Digital Realty Trust was established last year to develop and lease custom-built data centers. This move to diversify its rental income stream aims to make Realty Income’s funds from operations more stable and reliable.
Valuation Signals a Potential Bargain
Moreover, Realty Income’s stock appears to be attractively priced. Shares currently trade at 12.5 times the projected cash flow for 2025, which is a 25% discount compared to its average cash flow multiple over the last five years.
Explore This Unique Investment Opportunity
Have you ever felt like you missed a chance to invest in top-performing companies? Take note of Realty Income now, as some experts believe this may be a pivotal moment to invest.
Analysts occasionally generate “Double Down” stock recommendations for companies they believe are on the verge of substantial growth. If you’ve been hesitant about jumping in, this could be the perfect moment to act before it’s too late. Look at these impressive figures:
- Nvidia: Investing $1,000 when we recommended in 2009 would now be worth $342,278!*
- Apple: A $1,000 investment from our 2008 recommendation would stand at $47,543!*
- Netflix: If you had put in $1,000 when we doubled down in 2004, you’d see it grow to $496,731!*
Currently, we’re issuing “Double Down” alerts for three promising companies, and opportunities like this may not come along again soon.
See 3 “Double Down” stocks »
*Stock Advisor returns as of December 16, 2024
Sean Williams has positions in Annaly Capital Management. The Motley Fool has positions in and recommends Digital Realty Trust, Pfizer, and Realty Income. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
