For more than 50 years, dividend stocks have been running circles around non-payers in the return column.
Although risk and yield tend to correlate, proper vetting can uncover some true gems among companies with high-octane yields.
A trio of deeply discounted dividend stocks -- with yields ranging from 6.4% to 12% -- has the necessary catalysts to make patient investors richer.
Though there are countless strategies to grow your wealth on Wall Street, few have proved as successful over the long run as buying and holding high-quality dividend stocks.
Public companies that dole out a dividend to their shareholders on a regular basis tend to be recurringly profitable, time-tested, and are often capable of providing transparent long-term growth outlooks. In other words, they're just the type of businesses we'd expect to increase in value over time -- and data backs this up.
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In The Power of Dividends: Past, Present, and Future, the analysts at Hartford Funds, in collaboration with Ned Davis Research, compared the performance of dividend stocks to non-payers over a 51-year period (1973-2024). What they found was a vast outperformance by dividend payers: 9.2% on an annualized basis vs. 4.31% for non-payers (annualized).
The biggest challenge for income seekers is balancing risk and reward. Though an investor's natural instinct is to maximize yield, studies have shown that risk and yield tend to correlate. This is to say that ultra-high-yield stocks -- i.e., those with yields four or more times greater than the current yield of the S&P 500 -- can sometimes be more trouble than they're worth.
The good news is that some amazing deals have emerged in the wake of Wall Street's tariff-induced sell-off. What follows are three no-brainer ultra-high-yield dividend stocks -- sporting an average yield of 8.63% -- that are begging to be bought by opportunistic investors in May.
Pfizer: 7.46% yield
Arguably the best deal among ultra-high-yield dividend stocks in May is pharmaceutical juggernaut Pfizer(NYSE: PFE), which is generating a nearly 7.5% annual yield that appears completely sustainable.
While there's been some concern about the possibility of tariffs impacting pharmaceutical margins, the prime "challenge" for Pfizer is that it's being punished for its own previous success. After its two blockbuster COVID-19 therapies, Comirnaty and Paxlovid, brought in more than $56 billion in combined sales in 2022, they delivered "just" $11 billion in cumulative revenue last year.
Even though some investors might view this sales decline as a disappointment, it's important to understand how far Pfizer has come in just four years. At the end of 2020, Pfizer generated full-year sales of $41.9 billion. But in 2024, net revenue hit $63.6 billion, which represents a 52% increase. It's still generating significant revenue tied to its COVID-19 therapies, and its collective non-COVID-19 product portfolio has continued to grow. In short, Pfizer is a much stronger company, financially, than it was four years ago.
There's also quite a bit of excitement surrounding its rapidly growing oncology segment. The $43 billion deal to acquire cancer-drug developer Seagen in December 2023 vastly expands Pfizer's oncology pipeline, as well as offers billions of dollars in cost synergies that should result in improved operating efficiency, beginning this year.
Additionally, Pfizer has the luxury of bucking recession worries. Demand for brand-name drugs doesn't slow just because the U.S. economy (or stock market) hits a rough patch. Consistent demand for novel therapies, coupled with the strong pricing power Pfizer possesses, is an enviable combination for the company's bottom line.
Pfizer's forward price-to-earnings (P/E) ratio of 7.6 represents a 27% discount to its average forward P/E over the trailing five-year period.
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Verizon Communications: 6.39% yield
A second sensational ultra-high-yield dividend stock that's begging to be bought in May is none other than telecom titan Verizon Communications(NYSE: VZ). Verizon's nearly 6.4% yield is 363% higher than the average yield of the S&P 500.
The two headwinds that have predominantly held Verizon down are its sluggish growth rate in the wake of the artificial intelligence revolution -- i.e., investors have passed it over in favor of higher-growth tech stocks -- and the rapid increase in interest rates by the Federal Reserve from March 2022 to July 2023. Telecom companies like Verizon tend to rely on debt-financing for big projects. Higher interest rates can make these projects costlier.
The silver lining for investors is that neither of these headwinds is long-term in nature or particularly worrisome.
For example, even with Verizon's growth heyday a distant memory, the 5G revolution has provided a number of ways for the company to incrementally increase its organic growth rate. The expansion of its 5G wireless network, along with historically low churn rates, have led to highly predictable operating cash flow and modest sales growth.
Meanwhile, Verizon saw total broadband connections expand to 12.6 million, as of the end of March 2025, which is 13.7% more than it had in the comparable period one year prior. Though broadband is no longer the growth story it was in the early 2000s, it remains a provider of consistent cash flow, as well as a facilitator of high-margin service bundling.
Don't overlook Verizon's efforts to improve its balance sheet, either. It closed out 2022 with $130.6 billion in unsecured debt. In the nine subsequent quarters, Verizon's unsecured debt has shrunk by more than $13 billion to $117.3 billion. This is to say that even though interest rates have risen, Verizon's financial flexibility has improved.
The icing on the cake is that Verizon stock is historically cheap. Considering the broader market entered 2025 at its third-priciest valuation in history, Verizon's forward P/E of 8.8 makes this telecom giant a screaming bargain.
PennantPark Floating Rate Capital: 12.04% yield
The third no-brainer ultra-high-yield dividend stock that's begging to be bought by opportunistic income seekers in May is under-the-radar business development company (BDC) PennantPark Floating Rate Capital(NYSE: PFLT). PennantPark pays its dividend on a monthly basis and is yielding north of 12%, as of this writing.
A BDC is a type of business that invests in the equity (common and/or preferred stock) or debt of middle-market companies (i.e., generally unproven businesses). As of the end of 2024, PennantPark had approximately $1.964 billion of its $2.194 billion investment portfolio put to work in debt securities, with the remainder in various preferred and common equity positions.
Being a debt-focused BDC comes with a big perk for PennantPark: an outsized yield. Since unproven companies often lack access to basic financial services, the loans PennantPark oversees typically sport above market-rate yields. As of the end of 2024, its weighted average yield on debt investments was a delectable 10.6%!
More importantly, the entirety of PennantPark Floating Rate Capital's debt securities portfolio sports variable rates (if the company's name didn't already give it away). The Fed's aggressive rate-hiking cycle that began in March 2022 meaningfully increased PennantPark's weighted average yield on its debt investments. Even with the nation's central bank now in a rate-easing cycle, its slow-stepped approach to rate-cutting has given PennantPark ample opportunity to take advantage of higher lending rates.
Furthermore, the company's management team has done a phenomenal job of protecting its invested principal. Inclusive of equity investments, an average investment size of $13.8 million ensures that no single wager is imperative to profitability or capable of sinking the proverbial ship.
Likewise, all but $3.4 million of its roughly $1.964 billion of debt securities are first-lien secured. First-lien secured debtholders are at the front of the line for repayment in the event of a bankruptcy.
The feather in PennantPark's cap is that it's currently valued at a 10% discount to its book value (as of Dec. 31, 2024). BDCs often trade in close proximity to their respective book value, which is what makes PennantPark such a deal right now.
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Sean Williams has positions in PennantPark Floating Rate Capital and Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
