While there is no shortage of strategies that can pay off on Wall Street, buying dividend-paying stocks is arguably the surest way to ensure your wealth grows – and long-term data backs it up.
In 2013, a report by JP Morgan Asset Management compared the performance of companies that initiated and increased their payments between 1972 and 2012 with that of publicly traded companies that did not pay dividends in the same period. The result? Dividend-paying stocks generated an average annual return of 9.5%, which, if reinvested, would have doubled investors’ money every 7.6 years. By comparison, non-dividend-paying stocks worked their way up to an annualized return of just 1.6%.
Dividend stocks are a smart way to increase your wealth and crush inflation in the process. If you have $ 100,000 ready to go to work, which won’t be necessary for emergencies or bills, the following quartet of ultra-high dividend stocks could collectively earn you close to $ 8,700 in annual income (a total return 8.7%). Note that this assumes equal investments (a purchase of $ 25,000, rounded to the nearest whole share) in all four companies.
Enterprise Product Partners: 8.1% return and $ 2,023.20 in annual revenue
Energy stocks are generally a good bet to generate income above the market. However, the potential for return with the mid-market energy company Enterprise Product Partners (NYSE: EPD) is really something special. A $ 25,000 investment in Enterprise Products Partners could buy 1,124 shares on September 14. Based on the company’s base annual payment of $ 1.80, income investors can expect to earn approximately $ 2,023 in 12 months. Keep in mind, however, that this company has increased its base payout for 22 consecutive years.
While oil stocks probably aren’t at the top of investor buying lists after the coronavirus pandemic caused a historic drop in demand for crude oil in 2020, midsize companies are a different beast. Companies like Enterprise Products provide the means to transport and store oil, natural gas and natural gas liquids. This company has more than 50,000 miles of pipelines and 14 billion cubic feet of natural gas storage in the United States
The good thing about Enterprise Products Partners are its contractual arrangements. These contracts are designed so that, regardless of the volatility of oil and natural gas prices, the Company can count on predictable cash flows each quarter. Having a good understanding of cash flow allows management to easily spend money on projects without negatively affecting profitability or dividends.
Moreover, even at the worst of the pandemic, Enterprise Products Partners’ payout coverage ratio did not drop below 1.6. A number less than 1 would mean an unsustainable payment. There is sufficient buffer here to support this robust 8.1% yield.
AGNC Investment Corp. : 9% return and $ 2,259.36 in annual income
While it hasn’t been a favorite Wall Street industry over the past decade, mortgage real estate investment trusts (REITs) seem poised to shine. If investors put $ 25,000 to work in AGNC Investment Corp. (NASDAQ: AGNC), as of September 14, they could gobble up 1,569 shares and enjoy a basic annual payout of $ 1.44 per share. This would lead to $ 2,259 in annual income. In addition, AGNC pays its dividend monthly.
Mortgage REITs are companies that borrow money at short-term lending rates and use that capital to buy higher-yielding long-term assets, such as mortgage-backed securities. The goal here is to maximize the difference between the average long-term return and the average borrowing rate. This difference is known as the net interest margin.
Here’s the kicker: During the early stages of an economic recovery, the yield curve typically steepens. It’s a fancy way of saying that long-term bond yields rise while short-term bond yields flatten or even fall. If this steepening of the yield curve is accompanied by a clear plan by the Federal Reserve (i.e. the country’s central bank does not change interest rates quickly), it is often a great news for the profit potential of mortgage REITs like AGNC.
If you need that extra boost of confidence, know that AGNC Investment has averaged a double-digit percentage return over 11 of the past 12 years.
Altria Group: 7.4% return and $ 1,857.60 in annual income
Although this was not the story of the growth it once was, the tobacco stock Altria Group (NYSE: MO) continues to pick up the dough for income investors with a return north of 7%. A $ 25,000 investment in Altria, the company behind the popular Marlboro tobacco brand, could buy 516 shares as of September 14. Based on its annual payout of $ 3.60 per share, Altria investors would reap nearly $ 1,858 in annual dividends.
Despite a relatively steady decline in the percentage of adult smokers in the United States, Altria’s tobacco sales have continued to increase. It has to do with the incredible pricing power of products containing nicotine. Controlling around half of the premium cigarette market with Marlboro allows Altria to pass on price increases and generate modest revenue growth.
But Altria doesn’t just raise prices for better results. It is licensed under the IQOS Smokeless Tobacco System from Philip Morris International, and invested $ 1.8 billion in Canadian marijuana stocks Cronos Group in 2019. The predictability of Altria’s cash flow offers the company a number of additional opportunities that could offset the low volumes in cigarette sales.
The bottom line with Altria is that investors commit to the company paying a hefty dividend and regular share buybacks. For investors with patient income, this is a recipe for wealth building.
Annaly Capital Management: 10.2% return and $ 2,545.84 annual income
Last, but not the least, we have mortgage REIT Annaly Capital management (NYSE: NLY). Yes, another Mortgage REIT. Among ultra-high dividend stocks, Annaly might just be the most attractive company you can invest in right now. With $ 25,000, you could buy 2,893 shares of Annaly on September 14th. Factoring in a basic annual payment of $ 0.88, dividend investors would receive almost $ 2,546 in 12 months.
Like AGNC, Annaly should benefit from a likely expansion of the yield curve. Since mortgage REIT stock prices often hover near their book value, the combination of an economic recovery and a steepening yield curve usually also causes stock prices to appreciate.
Something to note with Annaly – as well as AGNC – is that he invests almost exclusively in agency securities. The agency’s assets are guaranteed by the federal government in the event of default. As you can imagine, having this protection tends to weigh down the return potential of agency securities. At the same time, having this protection by default allows Annaly to use leverage cautiously to increase her profit potential.
Since its inception in 2000, Annaly has distributed over $ 20 billion in dividends and has averaged an average return of around 10% over the past two decades. It might not be a Wall Street favorite, but it’s a serious income security that can crush inflation in the long run.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.