Every cloud has a silver lining. Sometimes, they have two. That’s the case with many stocks in the current market downturn. Dividend yields are higher. Valuations are lower. And those are two big pluses for income investors.
Some stocks have especially attractive dividend yields and valuations. Here are three dirt cheap, ultra-high-yield dividend stocks to buy right now.
1. Ares Capital
Ares Capital’s (ARCC) forward dividend yield is a sky-high 9.42%. The stock trades at a low forward earnings multiple of 9.6. You could make a strong argument that Ares Capital is an income investor’s dream stock.
Ares Capital could experience some pain if the economy falters and the middle-market businesses it serves require less access to capital. On the other hand, it’s possible that more of those businesses could turn to BDCs, such as Ares, instead of banks during an economic downturn.
Regardless of what happens over the near term, Ares Capital should be a solid winner over the long term. The company has delivered roughly 70% greater total returns than the S&P 500 since its initial public offering in 2004. I expect that outperformance will continue in the future.
2. Enterprise Products Partners
As a limited partnership (LP), Enterprise Products Partners (EPD) pays distributions to unitholders rather than dividends to shareholders. Whatever you call it, though, it’s juicy: Enterprise’s forward distribution yield tops 6.8%. The company has also increased its distribution for an impressive 26 consecutive years.
Unlike oil and gas producers, Enterprise Products Partners’ revenue doesn’t fluctuate in tandem with commodity prices. As long as oil, natural gas, natural gas liquids, or other hydrocarbons are flowing through the company’s 50,000+ miles of pipeline, Enterprise doesn’t care what the price of those liquids is.
Enterprise Products Partners’ business is largely recession-resistant. I also like that most of its revenue is protected from inflation, with around 90% of the company’s long-term contracts containing inflation-based escalation provisions.
3. Pfizer
Pfizer’s (PFE) forward dividend yield of 7.72% is near its highest level since the Great Recession. The big pharma stock is cheap, too, with shares trading at 7.5 times forward earnings. The ultra-high yield and the dirt cheap valuation are both byproducts of Pfizer’s steep sell-off that began in late 2021 and has continued this year.
However, Pfizer’s outlook isn’t as gloomy as it might seem. The company has several newer products with fast-growing sales, notably including migraine therapy Nurtec ODT and cancer drugs Adcetris and Padcev. Pfizer’s pipeline features 32 programs in late-stage clinical development.
Pfizer recently announced its 16th consecutive annual dividend increase. The drugmaker should be able to maintain that streak. Wall Street also thinks the stock has plenty of room to run, with the consensus 12-month price target reflecting an upside potential of nearly 35%.
— Keith Speights
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Source: The Motley Fool
