Every investor’s journey down Wall Street is as unique as a fingerprint. With a vast array of companies and ETFs at their fingertips, investors have the power to tailor their portfolios to match their risk appetites and investment preferences.
But when the lens widens, few strategies have proven as consistently rewarding as investing in dividend stocks for the long haul.
The Power of Dividends: A Historical Edge
According to Hartford Funds’ report, “The Power of Dividends: Past, Present, and Future,” dividend-paying companies outperformed non-payers with an annual average return of 9.18% over a 50-year span from 1973 to 2022. In stark contrast, non-dividend paying entities raked in a mere 3.95% annually during the same period.
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In terms of stability, dividend-paying companies were 6% less volatile than the S&P 500, while non-payers were 18% more turbulent.
Deciding Wisely: Choosing Ultra-High-Yield Stocks
Choosing the right dividend stocks can be a daunting task for income-seeking investors. The challenge lies in balancing high yield with acceptable risk. Ultra-high-yield dividend stocks, those offering yields four times higher than the S&P 500, may seem enticing but can bring their share of complications.
However, in a twist of fate, two high-yield stocks boasting an average yield of 8.39% can provide you with $300 in monthly dividend income if you invest $43,000 equally between them.
Realty Income: The Rock-Solid Performer
One of these stocks is the top-tier retail REIT, Realty Income (NYSE: O), known for increasing its dividend 124 times since its 1994 IPO. This stalwart has weathered industry headwinds, including higher Treasury yields and economic uncertainties, with resilience.
Realty Income’s portfolio of 15,450 commercial properties, mainly resilient to economic downturns, ensures steady cash flows. Boasting a 98.2% median occupancy rate since 2000, it outshines the average S&P 500 REIT.
With strategic diversification efforts, including forays into the gaming industry, Realty Income is well-positioned for sustained success. Trading at a 35% discount to its historical cash flow multiple, it presents an attractive opportunity.
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PennantPark Floating Rate Capital: The Hidden Gem
The second high-yield contender is under-the-radar BDC, PennantPark Floating Rate Capital (NYSE: PFLT), offering a 10.91% yield. Its focus on debt investments, with a weighted average yield of 12.5%, has been a boon in the current economic climate.
PennantPark’s entirely variable rate debt-securities portfolio has thrived in the rising interest rate environment, enhancing its returns. With impeccable capital preservation tactics and a diversified portfolio, PennantPark stands out as an attractive choice for income investors.
For those seeking reliable monthly income streams, now might just be the opportune moment to take the plunge into these two high-yield stocks.
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Sean Williams holds positions in PennantPark Floating Rate Capital. The Motley Fool has positions in and recommends Realty Income. The Motley Fool upholds a strong disclosure policy.
The views and opinions expressed in this article belong to the author and may not necessarily align with those of Nasdaq, Inc.
