Dividend investing has long been a popular strategy for those seeking steady income and potential long-term growth. However, stocks with exceptionally high yields (over 5%) often raise eyebrows among investors. These ultra-high-yield stocks tend to underperform the broader market in the short term, as their generous payouts often reflect underlying challenges.
Still, academic research suggests that high-yield dividend stocks frequently outperform the key benchmarks, like the S&P 500, over extended periods, particularly when held for 20 years or more. This long-term approach allows companies to address their challenges while investors benefit from reinvesting their substantial dividends, potentially leading to significant compound returns.
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With this background in mind, here's a brief overview of 10 of the best ultra-high-yield dividend stocks to consider as part of a long-term portfolio. These companies have strong brand recognition, stellar yields, and trade at a significant discount relative to the S&P 500.
10 best ultra-high-yield dividend stocks
1. Altria Group
Altria (MO 1.50%) sports a forward price-to-earnings (P/E) ratio of 9.93 and an eye-popping 7.77% dividend yield. As a leader in the tobacco industry, Altria faces headwinds from declining smoking rates but continues to adapt through diversification into alternative products.
NYSE: MO
Key Data Points
2. AT&T
Telecom giant AT&T (T 0.37%) offers a 5.84% dividend yield with a forward P/E of 8.58. The company is navigating a competitive landscape while investing heavily in 5G infrastructure.
3. British American Tobacco
British American Tobacco (BTI 1.20%) pays a generous 8.45% dividend yield. The company's global presence and efforts to develop reduced-risk products aim to offset declining traditional cigarette sales in many markets. Its shares are also cheap at under 8x forward earnings.
4. Dow
Chemical company Dow (DOW 2.37%) offers a 5.3% dividend yield with a forward P/E of 17.6. Dow's diverse product portfolio serves various industries, but its performance is often tied to global economic cycles.
5. Ford Motor Company
Ford (F 2.39%) sports a 5.36% dividend yield with an exceptionally low forward P/E of 5.77. The automaker is investing heavily in electric-vehicle (EV) technology while maintaining its strong position in traditional combustion-engine vehicles.
NYSE: F
Key Data Points
6. HSBC Holdings
Global banking group HSBC (HSBC 1.06%) offers a 7% dividend yield with a forward P/E of 7.12. The bank's extensive international presence provides a margin of safety against geographic risk.
7. Pfizer
Pharmaceutical-giant Pfizer (PFE 0.43%) offers a 5.46% dividend yield and a forward P/E of 13.3. The company's diverse drug portfolio and robust research pipeline could generate substantial growth in the years ahead.
8. Rio Tinto Group
Mining company Rio Tinto (RIO 1.73%) sports a 6.69% dividend yield with a forward P/E of 8.83. As a major producer of iron ore, copper, and other metals, the company's performance is closely tied to global commodity demand.
9. Stellantis N.V.
Automaker Stellantis (STLA 2.00%) stands out with a 9.42% dividend yield and a remarkably low forward P/E of 3.12. The company, formed from the merger of Fiat Chrysler and PSA Group, is leveraging its combined strengths to compete in the evolving auto industry.
10. Verizon Communications
Telecom-leader Verizon (VZ 0.92%) offers a 6.64% dividend yield with a forward P/E of 8.87. The company continues to invest in its 5G network while exploring new revenue streams in the rapidly changing telecommunications landscape.
Key takeaways
These 10 ultra-high-yield stocks span various industries, each with unique opportunities and potential headwinds. A well-constructed portfolio might include a mix of these high-yield stocks, along with a handful of high-yield dividend exchange-traded funds. Such an approach would provide a healthy balance of income, growth potential, and diversification.
