Investors love dividend stocks, especially those with ultra-high yields, because they offer a significant income stream and have substantial total return potential. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. At 247 Wall St., we consistently emphasize the potential of total return to our readers. It is one of the most effective ways to enhance the prospects of overall investing success. Once again, total return refers to the collective increase in a stock’s value, including dividends.
24/7 Wall St. Key Points:
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Weak jobs data and a slowing economy could jar the Federal Reserve into rate cuts by September.
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The current federal funds rate is 4.25% to 4.50%.
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The rate cut likely would be 25 basis points, or 1/4 of 1%.
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Recent economic data has indicated that the economy is starting to slow. While there has been solid progress on the inflation front this year, with energy prices and some grocery prices, such as eggs, starting to come down, the unintended consequences of the tariffs imposed by the president on countries that impose them on the U.S. may be starting to take effect. Walmart has stated unequivocally that it will raise prices to account for the impact of tariffs, while others have indicated that they will not. Walmart serves a significant portion of the U.S. market. In the United States, the median distance to a Walmart is 4.2 miles, so if the company does raise prices, many will feel it.
It’s a good bet that if Federal Reserve Chair Jay Powell and the regional voting governors see the economy slow during the summer months, they will lower rates at the meeting they will hold in September. With the European Central Bank continuing to cut rates, now down to 2%, the pressure on other central banks to follow suit will intensify. Bonds, leveraged ETFs, REITs, and ultra-high-yield stocks stand to be big winners in a rate-cutting environment.
We screened our 24/7 Wall St. ultra-high-yield research database looking for potential winners when rates start to go lower, and three of our favorite companies could very well catch a significant tailwind. All three have a Buy rating from top Wall Street firms.
Why do we cover ultra-high-yield stocks?
While not suited for everybody, those trying to build strong passive income streams can do exceptionally well with some of these top companies in their portfolios. Paired with more conservative blue-chip dividend giants, investors can employ a barbell approach to generate substantial passive income streams.
Annaly Capital Management
With a substantial dividend and the potential for further growth with lower interest rates, this company has enormous potential. Annaly Capital Management Inc. (NYSE: NLY) is a diversified capital manager with investment strategies across mortgage finance.
The company owns a portfolio of real estate-related investments, including:
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Mortgage pass-through certificates,
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Collateralized mortgage obligations,
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Credit risk transfer (CRT) securities, and other
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Securities representing interests in or obligations backed by pools of mortgage loans, residential mortgage loans assigned an Overweight rating to the shares, accompanied by mortgage servicing rights
Its investment groups include:
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Annaly Agency Group
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Annaly Residential Credit Group
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Annaly Mortgage Servicing Rights Group
Annaly Agency Group invests in agency mortgage-backed securities collateralized by residential mortgages.
Annaly Residential Credit Group invests in non-agency residential mortgage assets within residential and commercial markets.
And the Annaly Mortgage Servicing Rights Group invests in MSR, which provides the right to service residential mortgage loans in exchange for a portion of the interest payments made on the loans.
Piper Sandler has an Overweight rating on the shares and a $21 target price.
PennantPark Floating Rate
This leading company invests in middle-market companies in the United States. Often overlooked by Wall Street, PennantPark Floating Rate Capital Ltd. (NYSE: PFLT) offers a substantial dividend yield. It is a closed-end, externally managed, non-diversified investment company.
The investment objectives of the company are to generate both current income and capital appreciation while seeking to preserve capital by investing primarily in floating-rate loans and other investments made to U.S. middle-market companies.
The company primarily invests private companies in the form of floating-rate senior secured loans, including:
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First lien secured debt
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Second lien secured debt
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Subordinated debt
The company may also invest in equity investments. Under normal market conditions, the company generally expect that at least 80% of the value of its managed assets.
PennantPark generally expects to invest up to 35% of its overall portfolio opportunistically in other types of investments, including second lien secured debt, subordinated debt, and, to a lesser extent, equity investments.
Maxim Group has a Buy rating with a $12.50 target price.
TXO Partners
TXO Partners L.P. (NYSE: TXO) acquires, develops, optimizes, and exploits conventional oil, natural gas, and natural gas liquid reserves. With a massive dividend and trading near a 52-week low, TXO Partners is a master limited partnership that focuses on the acquisition, development, optimization, and exploitation of conventional oil, natural gas, and natural gas liquids (NGL) reserves in North America.
The company’s acreage positions are concentrated in three main areas:
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Permian Basin of West Texas and New Mexico
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San Juan Basin of New Mexico and Colorado
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Williston Basin of Montana and North Dakota
Its assets consist of approximately 1,117,628 gross (549,229 net) leasehold and mineral acres located primarily in the Permian Basin, San Juan Basin, and Williston Basin. The assets include a 50% interest in Cross Timbers Energy, also known as Cross Timbers.
As an operator, it designs and manages the development, recompletion, or workover of all the wells it operates, and supervises operation and maintenance activities on a day-to-day basis. The company markets the majority of the natural gas, NGL, crude oil, and condensate production from the properties on which it operates.
Stifel has a Buy rating with a $20 target price.
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