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Dividend yields can be like ladders: The higher you go, the scarier it gets. Many of us are more afraid of falling off an especially tall ladder than a shorter one. Many investors are more leery of ultra-high dividend yields because they're afraid the dividends could be in jeopardy.
However, some stocks that pay exceptionally juicy dividends aren't so scary. Here are three ultra-high-yield dividend stocks I recently bought and why I like them.
1. Dominion Energy
I initiated a position in Dominion Energy (NYSE: D) last year and increased my stake earlier this month. The company provides electricity to around 3.6 million homes and businesses across three states -- Virginia, North Carolina, and South Carolina. It also provides natural gas to roughly 500,000 customers in South Carolina.
Dominion Energy's forward dividend yield is just a hair below 5%. Its payout ratio of 98.5% is high, but I think the dividend is relatively safe. The company should be able to deliver long-term operating earnings-per-share growth of between 5% and 7%, enough to comfortably keep the dividends flowing. Also, Dominion cut its dividend in 2020. I doubt that management wants to make shareholders angry again.
This stock was a big winner throughout much of 2024, jumping around 25% at one point. However, the Federal Reserve's hints about making fewer interest rate cuts in 2025 caused Dominion's shares to pull back somewhat late in the year.
I think Dominion's long-term prospects are solid. All three states where the company operates have growing populations. Data centers should remain an especially key opportunity for Dominion, with Northern Virginia leading the world in data centers.
2. Pfizer
I've owned a relatively small position in Pfizer (NYSE: PFE) for several years, long enough to see huge gains during the height of the COVID-19 pandemic and a huge sell-off afterward. I bought more shares of Pfizer recently, though.
The drugmaker's forward dividend yield of over 6.5% factored into my purchase decision. I don't rely on dividends for income at this point, but such a high yield should make it easier for Pfizer to deliver double-digit-percentage total returns.
Pfizer's price was also right. The stock trades at less than 9 times forward earnings. Its price/earnings-to-growth (PEG) ratio based on five-year earnings projections is a super-low 0.2, according to financial data and infrastructure provider LSEG.
Candidly, I'm skeptical about that PEG multiple. It seems too low to me. However, I think Pfizer's growth prospects should be pretty good despite losing patent exclusivity for several products over the next few years. The company has a strong lineup of new products and a promising late-stage pipeline that I expect to contribute to growth over the rest of the decade.