One of the greatest aspects of Wall Street is that there are countless ways to make money. With thousands of publicly traded companies and exchange-traded funds (ETFs) to choose from, there's likely to be one or more securities that can help you reach your financial goal. But among the variety of ways investors can become wealthier on Wall Street, few have been more successful over long periods than buying and holding high-quality dividend stocks.
Companies that pay a regular dividend tend to be profitable on a recurring basis and have often demonstrated their ability to weather economic downturns. Additionally, income stocks can typically provide transparent long-term growth outlooks.
Yet, what matters most to investors is that dividend stocks have historically outperformed non-payers by a significant amount. In The Power of Dividends: Past, Present, and Future, the analysts at Hartford Funds, in collaboration with Ned Davis Research, compared the performance of dividend stocks to non-payers over a 50-year period (1973-2023). The report showed that dividend stocks more than doubled the average annual return of non-payers (9.17% versus 4.27%) and did so while being less volatile than the broad-based S&P 500.
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The challenge for income seekers is balancing yield and risk. Studies have shown that as yield rises, so does investment risk. Since yield is a function of payout relative to share price, a company with a struggling/failing operating model and a declining share price can lure income seekers into a juicy yield trap.
Thankfully, not all ultra-high-yield dividend stocks are necessarily trouble. With proper vetting, amazing bargains and sustainable outsize payouts can be found.
If you want to generate $300 in super-safe dividend income in 2025, invest $3,730 (split equally three ways) in the following three ultra-high-yield stocks that sport an average yield of 8.05%!
Realty Income: 6.02% yield
The first rock-solid income stock that can deliver for dividend investors in a big way in 2025 (and beyond) is Wall Street's premier retail real estate investment trust (REIT) -- and monthly dividend payer -- Realty Income (O -0.77%). Realty Income's distribution has increased for 109 consecutive quarters, which is a stretch spanning over 27 years.
Realty Income's commercial real estate (CRE) portfolio is unmatched among retail REITs. It ended September with 15,457 CRE properties, of which 90% were considered "resilient to economic downturns and/or isolated from e-commerce pressures."
Funds from operations (FFO) is so predictable for Realty Income because it predominantly leases to stand-alone businesses in consumer staple industries. For instance, grocery stores, convenience stores, dollar stores, drug stores, and automotive service locations will be visited by consumers regardless of how well or poorly the U.S. economy is performing. This leads to Realty Income's renters paying their bills on time and often renewing their leases.
Since the century began, Realty Income's occupancy rate has been superior to other S&P 500 REITs. It has a median occupancy rate of 98.2% over 24 years, a full 4 percentage points higher than the 94.2% median occupancy rate for S&P 500 REITs over the same timeline. Once again, this means consistent FFO, which is imperative to maintaining its robust payout.
Furthermore, Realty Income has been expanding beyond its retail roots. It's forged two deals in the gaming industry over the last two years and acquired Spirit Realty Capital in January 2024 to complement its existing CRE portfolio and push into new verticals.
The icing on the cake is that Realty Income's multiple to forecast cash flow in 2025 represents a 29% discount to its average price-to-cash-flow ratio over the trailing-five-year period. In short, it's still a bargain.
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Enterprise Products Partners: 6.76% yield
A second ultra-high-yield stock that can help investors bring home $300 in super-safe dividend income in the new year with a starting investment of $3,730 (split into thirds) is energy company Enterprise Products Partners (EPD -0.23%). Enterprise has raised its base annual distribution in each of the last 26 years, which suggests its nearly 7% yield is exceptionally safe.
The beauty of Enterprise Products Partners' operating model is that it's the essential middleman of the energy complex. Whereas upstream drilling companies can be whipsawed by the ever-fluctuating spot price of crude oil and natural gas, this is rarely ever an issue for Enterprise and its more than 50,000 miles of transmission pipelines and north of 300 million barrels of liquids storage capacity.
Like Realty Income, Enterprise is built for cash-flow consistency. A majority of the company's contracts with upstream drillers are long term in nature, have built-in escalations to mitigate the impact of inflation, and are, most importantly, fixed rate. This fixed-rate quality allows for accurate cash-flow forecasting, which frees up the company's board and management team to pay a hearty distribution and invest for the future.
Enterprise has invested close to $7 billion in major capital projects, many of which are aimed at furthering its exposure to natural gas liquids. These projects coming online, coupled with lower forecast capital expenditures in 2026, should result in a meaningful uptick in cash flow from operations.
Don't overlook the importance of inorganic growth, either. The cash-flow transparency of the company's predominantly fixed-rate contracts allows for occasional bolt-on acquisitions that are, in many cases, immediately accretive to the company's bottom line. For instance, its recently completed purchase of Pinon Midstream for $950 million in cash is expected to "generate distributable cash flow accretion of $0.03 per unit in 2025."
Enterprise Products Partners is, arguably, the safest ultra-high-yield stock in the energy sector.
PennantPark Floating Rate Capital: 11.36% yield
The third high-octane income stock that can help you generate $300 in dividend income in 2025 from an initial investment of $3,730 (split three ways) is business development company (BDC) PennantPark Floating Rate Capital (PFLT 0.28%). PennantPark is also a monthly dividend payer and is currently yielding a mouthwatering 11.4%.
BDCs are companies that invest in the debt or equity (common and preferred stock) of middle-market businesses -- in other words, smaller companies that haven't yet proven themselves. As of the end of September, approximately $1.75 billion of PennantPark's $1.98 billion portfolio was invested in loans, which makes it a predominantly debt-focused BDC.
The biggest advantage of being a debt-driven BDC can be seen in the company's yield. Since unproven businesses often lack access to basic financial services, the loans PennantPark works out typically sport a well-above-average yield. As of Sept. 30, the company's portfolio was generating a weighted average yield on debt investments of 11.5%!
What makes PennantPark Floating Rate Capital particularly special is in its name. Every last loan in its portfolio is variable rate. The Fed's aggressive rate-hiking cycle from March 2022 through July 2023 sent PennantPark's weighted average yield on debt investments from 7.4%, as of Sept. 30, 2021, to as high as 12.6%. Even with the nation's central bank now undertaking a rate-easing cycle, the slow pace of cuts should afford PennantPark plenty of lending opportunity at higher yields.
No discussion of PennantPark is complete without noting the phenomenal job management has done in mitigating risk to the company's principal. Inclusive of equity investments, the company's average investment size of $12.6 million ensures that no single loan or equity position can rock the proverbial boat.
Furthermore, all but $2.7 million of the roughly $1.75 billion loan portfolio is in first-lien secured notes. In the unlikely event that a borrower seeks bankruptcy protection, first-lien secured debtholders are at the front of the line for repayment.
PennantPark Floating Rate Capital may be tiny next to Realty Income and Enterprise Products Partners, but the company's operating model packs a punch, along with a hearty (and sustainable) dividend.
