Dividend stocks are the best way to build wealth, which is why you should look for ultra-high yield stocks. The asset managers at Hartford Funds looked at the benchmark S&P 500 going all the way back to 1930 and found there hasn’t been a single decade where dividend stocks didn’t produce positive returns.
Even during the so-called “lost decade” of the 2000s when the bursting of the tech stock bubble, 9/11, and the housing market crash resulted in the popular index generating negative returns, dividend stocks still generated a positive 1.8% return.
That’s because dividend-paying stocks are typically profitable companies that have been battle-tested in the marketplace. Their investment thesis remains intact despite economic conditions.
Yet dividend investing is also a delicate balancing act. The higher the yield a dividend pays, the greater the risk tends to be. An investor wants to achieve the greatest yield possible with the lowest risk achievable. Especially with ultra-high yield stocks, investors must do even greater due diligence.
What follows are three reliable ultra-high yield stocks that you should be buying hand over fist.
It’s no secret cigarette smoking is in a secular decline. The U.S. Centers for Disease Control says adult smokers have declined from 20.9% of the population in 2005 to just 11.5% in 2021.
Yet the tobacco industry is hugely profitable and Altria (NYSE:MO) is one of the best-positioned companies to capitalize on the newest trends.
As the biggest domestic tobacco stock, Altria’s Marlboro brand of cigarettes also owns the largest slice of the market with a 42% share. It also possesses significant pricing power that it can raise prices almost at will without losing many customers.
Adjusted profits grew 4% in the second quarter to $1.31 per share. Net earnings totaled over $2.1 billion for the period.
Electronic cigarettes are the future for tobacco companies, though. Altria recently completed its acquisition of NJOY, the country’s third-largest e-cig manufacturer. Altria previously had a high-profile flameout with one-time e-cig leader Juul Labs. It lost the nearly $14 billion it invested in the company.
NJOY should be able to steal considerable market share from British American Tobacco (NYSE:BTI) with Altria’s marketing muscle behind it.
Altria’s high growth days are certainly behind it, but it has a bright future still in e-cigs and in marijuana. Its investment in Cronos Group (NASDAQ:CRON) has been an impediment but renewed interest in legalization at the federal level could move that business to the forefront.
With a better than 50-year record of raising its dividend, management has shareholder interests at heart. It’s one that should keep the dividend yield at 8.7% or better.
Enterprise Products Partners (EPD)
Midstream energy stock Enterprise Products Partners (NYSE:EPD) also has an enviable track record for paying a dividend. The pipeline and storage business has raised its payout every year for a quarter of a century. The dividend yields 7.5% annually.
Energy logistics has proved to be a lucrative operation. That’s because as the middle-man between upstream and downstream players, Enterprise Products Partners makes money no matter which way the market for oil and gas goes.
Its customers sign long-term, fixed-fee, or take-or-pay contracts, so even if they don ‘t take any product, Enterprise still gets paid.
The midstream company is also a reliable dividend stock. Even during the pandemic when oil futures actually went negative, the energy stock still paid its dividend.
Without question energy stocks are cyclical. Over the past decade, Enterprise Products Partners’ performance lagged the S&P 500. Yet fossil fuel demand is not abating, making the midstream company’s dividend safe and primed for future increases.
Western Union (WU)
Just as the telegram was replaced by faster forms of communication, Western Union (NYSE:WU) faces increased competition in the payments market. Fintech stock apps making consumer-to-consumer (C2C) money transfers a simple process. “Venmo” is almost a verb these days.
However, Western Union’s biggest asset is arguably its extensive experience in consumer cross-border and cross-currency transactions. Second quarter results saw a 9% currency-adjusted increase in revenue to $1.2 billion due to strong cross-border transactions. Earnings of $0.51 per share beat analyst estimates of $0.39 per share.
President and CEO Devin McGranahan said, “Growth in our C2C transactions was the highest since 2021.”
The Western Union brand is still valuable. Users can make payments to more than 200 countries and territories through its app. The company recently sold its business-focused payments business.
Western Union’s quarterly dividend had been raised regularly prior to the pandemic, but has been flat since. Yet with a payout ratio of 47%, it is safe and has plenty of room for increases in the future. Yielding 7.4% annually, it will reward investors as the legacy payments company evolves into a modern fintech stock.
On the date of publication, Rich Duprey held a LONG position in MO stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.