Investors love dividend stocks, especially high-yield varieties, 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. For example, if you buy a stock at $20 that pays a 3% dividend, and it goes up to $22 in a year, your total return is 13%. That is, 10% for the increase in stock price and 3% for the dividends paid.
We screened our 24/7 Wall St. high-yield dividend stock research database, looking for companies trading below the $20 level that offer investors enormous total return potential. While more suitable for growth and income investors with somewhat higher risk tolerance, all five of these stocks are solid ideas as we head into the holidays. All are rated Buy at top Wall Street firms.
Why do we cover high-yield dividend stocks?
Since 1926, dividends have contributed approximately 32% of the total return for the S&P 500, while capital appreciation has contributed 68%. Therefore, sustainable dividend income and capital appreciation potential are essential for total return expectations.
Ellington Financial
Ellington Financial Inc. (NYSE: EFC) has been at the forefront of data-driven investing since its founding in 1994, and it pays a rich 11.3% dividend. This high-quality mortgage real estate investment trust (REIT) is a favorite among Wall Street investors. Ellington, through its subsidiary, Ellington Financial Operating Partnership, acquires and manages mortgage-related, consumer-related, corporate-related, and other financial assets in the United States.
The company develops and manages residential mortgage-backed securities (RMBS) backed by:
- Prime jumbo
- Alt-A, manufactured housing, and subprime residential mortgage loans
- RMBS for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity
- Residential mortgage loans
- Commercial mortgage-backed securities
- Commercial mortgage loans and other commercial real estate debt
Ellington Financial also provides collateralized loan obligations, mortgage-related and non-mortgage-related derivatives, corporate debt and equity securities, corporate loans, and other strategic investments. The company offers consumer loans and asset-backed securities backed by consumer and commercial assets.
B. Riley has a Buy rating, accompanied by a $16 target price.
Energy Transfer
Energy Transfer L.P. (NYSE: ET) is one of North America’s largest and most diversified midstream energy companies. This top master limited partnership is a safe option for investors seeking energy exposure and income, as the company pays a substantial 7.91% distribution. Energy Transfer owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all of the major domestic production basins.
The company is a publicly traded limited partnership with core operations that include:
- Complementary natural gas midstream, intrastate, and interstate transportation and storage assets
- Crude oil, natural gas liquids (NGL), and refined product transportation and terminalling assets
- NGL fractionation
- Various acquisition and marketing assets
Following the acquisition of Enable Partners in December 2021, Energy Transfer owns and operates over 114,000 miles of pipelines and related assets in 41 states, spanning all major U.S. producing regions and markets. This further solidifies its leadership position in the midstream sector.
Through its ownership of Energy Transfer Operating, formerly known as Energy Transfer Partners, the company also owns Lake Charles LNG Company, the general partner interests, the incentive distribution rights, and 28.5 million standard units of Sunoco, and the public partner interests and 39.7 million standard units of USA Compression Partners.
Barclays has an Overweight rating with a target price of $25.
Healthpeak Properties
This leading company invests in real estate in the healthcare industry across the United States, including senior housing, life sciences, and medical offices. Healthpeak Properties Inc. (NYSE: DOC) is a fully integrated REIT that pays a very respectable 6.98% dividend. It acquires, develops, owns, leases, operates, and manages real estate focused on healthcare discovery and delivery.
Healthpeak Properties segments include:
- Lab
- Outpatient medical
- Continuing care retirement community (CCRC)
The Outpatient medical segment owns, operates, and develops outpatient medical buildings, hospitals, and lab buildings.
The Lab segment properties contain laboratory and office space, and are leased primarily to:
- Biotechnology
- Medical device and pharmaceutical companies
- Scientific research institutions
- Government agencies
- Organizations involved in the life science industry
Its CCRC segment is a retirement community that offers independent living, assisted living, memory care, and skilled nursing units, providing a continuum of care within an integrated campus.
Baird has an Outperform rating with a $20 target price.
TXO Partners
This master limited partnership acquires, develops, optimizes, and exploits conventional oil, natural gas, and natural gas liquids reserves in North America. Based upon the last distribution of $0.35, TXO Partners L.P. (NYSE: TXO) yields a massive 10.5%, and shares are trading near a 52-week low. Its acreage positions are concentrated in three main areas:
- Permian Basin of West Texas and New Mexico
- San Juan Basin of New Mexico and Colorado
- 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 these three basins. The assets include a 50% interest in Cross Timbers Energy, also known as Cross Timbers.
As an operator, TXO 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, crude oil, and condensate production from the properties on which it operates.
Raymond James has a Strong Buy rating with a $22 target price.
Vale
Investors seeking an inexpensive way to play gold and mining should consider this 6.58% dividend gem. Vale S.A. (NYSE: VALE), formerly Companhia Vale do Rio Doce, is a Brazil-based mining company primarily engaged in the production of iron ore and nickel. It also produces iron ore pellets, copper, platinum group metals, gold, silver, and cobalt.
Vale is engaged in greenfield mineral exploration in five countries and operates logistics systems in Brazil and other regions worldwide, including railroads, maritime terminals, and ports, which are integrated with its mining operations. Additionally, Vale has distribution centers to support the global delivery of iron ore.
The company has numerous subsidiaries, including:
- Vale Logistica Uruguay
- Vale Holdings
- Vale Overseas
Vale operations abroad cover approximately 30 countries.
Barclays has an Overweight rating with a $14.50 price objective.
LNG Export Demand Driving Natural Gas to Highs: 5 Strong Buy Dividend Leaders