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.
Image source: Getty Images.
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 (NYSE: MO) 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.
2. AT&T
Telecom giant AT&T(NYSE: T) 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(NYSE: BTI) 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(NYSE: DOW) 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 (NYSE: F) 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.
6. HSBC Holdings
Global banking group HSBC(NYSE: HSBC) 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(NYSE: PFE) 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(NYSE: RIO) 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(NYSE: STLA) 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(NYSE: VZ) 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.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $20,554!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $41,185!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $340,492!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of July 29, 2024
HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. George Budwell has positions in AT&T and Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends British American Tobacco P.l.c., HSBC Holdings, Stellantis, and Verizon Communications and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.
