There's a common misconception that companies set the dividend yield for their stocks. Remember, a company only sets the dividend amount it pays. The market determines a stock's dividend yield, a percentage based on the dividend amount versus the share price.
In other words, the market often demands higher yields (by trading the stock at a lower price) from stocks with perceived problems. That's why mindlessly buying stocks with the highest yields you can find is problematic. Most stocks yielding 10% or more have issues with their business, often leading to dividend cuts.
But there are some companies with high yields, in the 6% to 8% range, that you can trust. These companies might be real estate investment trusts (REITs) that pay higher dividends by design or mature companies that don't need to invest as much into the business, so they pay more of their profits to shareholders.
Here are three excellent ultra-high-yield stocks you can buy today. I am confident that the dividend checks will continue in 2025 and beyond.
1. A Dividend King whose business has been on a slow burn for decades
Altria Group (MO 0.06%) is best known for selling Marlboro cigarettes in the United States, though its other products include cigars, oral tobacco, and smoke-free nicotine products. The company also owns a minority stake in global beer giant Anheuser-Busch InBev. The company generates most of its profits from smokeable products, and despite selling fewer cigarettes each year, it has continued raising its dividend for over 50 consecutive years (Dividend King).
This isn't a new phenomenon -- smoking rates have declined in the United States for decades. Altria has offset its shrinking volumes by raising prices on its addictive products. Cigarettes don't cost much to manufacture, and laws restrict advertisements for tobacco products, so the company sends most of its cash to shareholders as dividends. The company lacks much growth, so the stock yields almost 8% today.
Yet, the dividend is safe. The payout ratio is only 80% of earnings, plus analysts estimate Altria will grow earnings by 3.5% annually over the next three to five years, funding more incremental dividend raises. Investors can enjoy the dividend while Altria slowly shifts its business to smoke-free products for long-term growth.
2. A high-yield REIT with roots in the Sin City and beyond
VICI Properties (VICI -1.44%) is a real estate investment trust (REIT) that owns various gaming, hospitality, and entertainment properties. It owns 93 total properties across the United States and Canada, including Caesars Palace, MGM Grand, and the Venetian Resort in Las Vegas. If you've ever been inside a casino, you'd probably guess (correctly) that they make lots of money. Therefore, they make fantastic tenants. VICI Properties has collected 100% of its rent since forming in 2017.
REITs are great income stocks because they must distribute at least 90% of their taxable profits to shareholders. Today, the stock yields an impressive 6%. The dividend is well-funded, with a payout ratio of 76% of guided 2024 funds from operations (FFO). That's REIT speak for the cash profits it uses to fund the dividend. That leaves room to build on the company's seven-year streak of consecutive dividend increases.
However, since REITs don't pay a corporate income tax, most REIT dividends are taxed as ordinary income at the investor's marginal tax rate. Some people prefer to hold REITs in tax-advantaged accounts, like a Roth IRA. Don't hesitate to consult a tax professional to walk you through potential tax scenarios. Otherwise, VICI Properties can fit into any income investor's plans.
3. Dial up dividends with this dependable, high-yield telecom stock
Verizon Communications (VZ 0.05%) has remained a fixture in the U.S. telecommunications industry as consumer technology evolved from landlines to cellphones to smartphones. Verizon operates America's leading wireless network, with 37% of the market. Its two primary competitors combine to dominate approximately 99% of the market. The billions of dollars it costs to build and maintain wireless networks almost guarantees no competition from new players, though the three incumbents constantly jockey for customers.
Here's the thing. Verizon's business generates a ton of cash profits. So even though it must constantly invest in its network, it's proven to be a fantastic dividend stock. Today, Verizon stock yields a whopping 7%. Management has also increased the dividend for 20 consecutive years. The payout ratio is 59% of Verizon's 2024 earnings, so investors can feel good about the dividend's safety.
The downside is Verizon's low growth. Analysts anticipate the company's earnings will grow by an average of 2.5% annually over the long term. That means the stock offers little investment upside aside from its dividend. Still, it's hard to go wrong here if income is your primary focus.
