In this article, we discuss 10 extreme dividend stocks to buy now. You can skip our detailed analysis of high-dividend stocks and their past performance, and go directly to read 5 Extreme Dividend Stocks to Buy Now.
For an income investor, dividend yields play an important role in determining the earnings they generate from their investments. Financial experts have expressed their reservations about extremely high yields, as they often indicate financial trouble within the company. However, some historical reports have shown how high-yield dividend stocks outperformed other asset classes over the years. These equities became more significant during periods of market turmoil. In our recently published article titled 12 Highest Yielding Dividend Stocks You Can Buy Right Now, we reported that high-dividend stocks outperformed the market during high inflationary periods between 1940 to 2021, citing data from Newton Investment Management. Analyzing US market data from July 1928 to June 2019, the report indicated that stocks with high dividend yields tend to deliver strong returns in the future. This was seen through the outperformance of portfolios consisting of high dividend yield stocks, compared to those with low or zero dividend yield stocks when assessed on a value-weighted basis. In particular, they surpassed low-yield portfolios by 199 basis points (bps) and zero-yield portfolios by 330 bps.
The recent performance of high-dividend stocks confirms the findings of the analysis mentioned above. Amid a severe market downturn in 2022, the S&P 500 High Dividend Index experienced a modest decline of 1.1%, compared with an over 18% loss of the broader market. According to a report by AllianceBernstein (AB), the top 10% of dividend-paying companies outperformed the equal-weighted Russell 1000 Index by 11.56% in terms of annualized returns from March 2000 to September 2006. That said, high-dividend stocks haven’t consistently maintained their popularity, and their returns have varied in the past too. The AB report highlighted that due to their value-oriented characteristics, high-dividend stocks may underperform in growth-driven markets, as seen during the period from 2017 to 2020. During this time, the top 10% of dividend-paying companies lagged behind by nearly -6.4%, while non-dividend companies outperformed by approximately 5.3%. However, this dynamic was shifted in the late 2020s, with high-dividend payers leading the way and low-dividend stocks falling behind. This shows that the returns of high-dividend stocks vary depending on different business cycles.
As mentioned above, analysts generally don’t view high dividend yields as ideal for investment. Therefore, one strategy to mitigate the negative impacts of high yields is to combine them with dividend growth stocks. Various reports have shown how companies with strong dividend growth track records have outperformed over the years, so this could present a favorable outcome for investors. In the past 20 years ending 2022, dividend growers and initiators delivered a compounded return of 10.68%, compared with a 2.70% return of dividend cutters and eliminators during this period, as we reported in one of our articles referring to data from a UK-based global investment company, Abrdn. The report also mentioned that dividend growers also outperformed non-dividend companies, which returned 9.25% within this period.
Companies like Altria Group, Inc. (NYSE:MO), Verizon Communications Inc. (NYSE:VZ), and British American Tobacco p.l.c. (NYSE:BTI) are known for offering above-average dividend yields but they also maintain healthy dividend growth streaks. In this article, we will further take a look at some of the best dividend stocks with extreme yields.
10 Extreme Dividend Stocks to Buy Now
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Our Methodology:
For this list, we used a stock screener and selected dividend stocks with yields ranging from 10% to 15%, as of April 22. Among those stocks, we chose companies that have relatively stable dividend histories, however, a lot of the companies on the list don't have a consistent record of paying dividends due to their exceptionally high yields. They either stopped or reduced their dividend payments in 2020 due to the pandemic or because they were facing financial difficulties. The stocks are ranked in ascending order of their dividend yields, as recorded on April 22. We also mentioned hedge fund sentiment data for these stocks using Insider Monkey’s database of 933 hedge funds as of Q4 2023. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
British American Tobacco p.l.c. (NYSE:BTI) is a London-based tobacco company that also produces other nicotine products. The company has remained committed to its shareholder return, paying over £5.05 billion in dividends during FY23. It currently offers a quarterly dividend of $0.7431 per share and has a dividend yield of 10.06%, as of April 22.
On April 20, Goldman Sachs lifted its price target on British American Tobacco p.l.c. (NYSE:BTI) to $118 and maintained a Buy rating on the stock, perceiving a favorable risk-reward profile on the company.
At the end of Q4 2023, 22 hedge funds tracked by Insider Monkey held stakes in British American Tobacco p.l.c. (NYSE:BTI), up from 17 in the previous quarter. The total value of these stakes is more than $396 million. Among these hedge funds, Orbis Investment Management was the company's leading stakeholder in Q4.
Broyhill Asset Management mentioned British American Tobacco p.l.c. (NYSE:BTI) in its Q4 2023 investor letter. Here is what the firm has to say:
“The largest detractors to performance over the quarter were LatAm airports (ASR, OMAB, PAC), Bayer, and British American Tobacco p.l.c. (NYSE:BTI). After years investing across the tobacco sector, it became increasingly clear that owning anything other than the global leader – Philip Morris – made little sense. Consequently, we liquidated our investment in British American Tobacco after deciding that the (seemingly) cheap valuation wasn’t worth the mental anguish. In a hollow victory, shortly after our sale, management promptly wrote down the value of its US tobacco brands by $31.5 billion, sending shares cratering.”
Leggett & Platt, Incorporated (NYSE:LEG) is a diversified manufacturing company, based in Missouri, US. The company manufactures a wide range of products for offices, homes, and vehicles. On February 27, the company announced a quarterly dividend of $0.46 per share, which fell in line with its previous dividend. However, it is a Dividend King with 52 consecutive years of dividend growth under its belt, which makes LEG one of the best dividend stocks on our list. As of April 22, the stock has a dividend yield of 10.09%.
In FY23, Leggett & Platt, Incorporated (NYSE:LEG) reported an operating cash flow of $497 million, showing an increase of $56 million from the same period last year. In FY24, the company expects to return approximately $245 million through dividends.
The number of hedge funds tracked by Insider Monkey owning stakes in Leggett & Platt, Incorporated (NYSE:LEG) grew to 24 in Q4 2023, from 19 in the preceding quarter. The overall value of these stakes is over $123.6 million.
Delek Logistics Partners, LP (NYSE:DKL) is next on our list of the best dividend stocks with extreme yields. The American transportation company specializes in the marketing and storage of crude oil and other refined petroleum products. In FY23, the company's distributable cash flow came in at $248.2 million, with a coverage ratio of 1.37x. During the year, it returned approximately $46 million to shareholders through dividends.
Despite its high dividend yield of 10.61% as of April 22, Delek Logistics Partners, LP (NYSE:DKL) has raised its dividends for the past 44 consecutive quarters. The company currently offers a quarterly dividend of $1.055 per share.
As of the end of Q4 2023, Ken Griffin’s Citadel Investment Group was the only stakeholder of Delek Logistics Partners, LP (NYSE:DKL).
Barings BDC, Inc. (NYSE:BBDC) is a North Carolina-based business development company that mainly makes debt investments in middle-market companies. On February 22, the company announced a quarterly dividend of $0.26 per share, which was in line with its previous dividend. It has been raising its dividends for the past five years, which makes BBDC one of the best dividend stocks on our list. The stock's dividend yield on April 22 came in at 11.15%.
Barings BDC, Inc. (NYSE:BBDC) reported a total investment income of $75.8 million in the fourth quarter of 2023, which showed a 19.5% growth from the same period last year. The company's net investment income for the period came in at $33.4 million, or $0.31 per share.
Barings BDC, Inc. (NYSE:BBDC) was a part of 12 hedge fund portfolios at the end of Q4 2023, compared with 13 in the previous quarter, according to Insider Monkey's database. The stakes owned by these hedge funds are collectively valued at nearly $35 million. With over 2 million shares, Callodine Capital Management was the company's leading stakeholder in Q4.
Kennedy-Wilson Holdings, Inc. (NYSE:KW) ranks sixth on our list of the best dividend stocks with extreme yields. The American real estate investment trust company has paid regular dividends to shareholders for 13 consecutive years and offers a quarterly dividend of $0.24 per share. As of April 22, the stock has a dividend yield of 11.27%.
According to Insider Monkey's database of Q4 2023, 13 hedge funds held stakes in Kennedy-Wilson Holdings, Inc. (NYSE:KW), up from 11 in the previous quarter. These stakes are worth over $353 million in total.
