Uncovering Three Secure High-Dividend Share Options with Outstanding Yields for 2025 Investments
Undoubtedly, one of the most alluring aspects of investing on Wall Street is that there's no one-size-fits-all method to amass wealth. With tens of thousands of publicly traded companies and exchange-traded funds (ETFs) to select from, there are numerous securities that can aid in achieving your investment objectives.
However, amidst this overwhelming array of investment strategies, it's hard to overlook the immense success of purchasing and holding dividend shares.
Companies that consistently pay dividends to their shareholders generally share certain characteristics. They're usually profitable on a recurring basis, tested over time, and capable of providing clear, long-term growth outlooks. In essence, these are businesses we anticipate will appreciate in value over the long run.
What's more significant, however, is that dividend shares have a rich history of outperformance. In The Power of Dividends: Past, Present, and Future, researchers at Hartford Funds compared the average annual return of dividend shares to non-payers over a 50-year period (1973-2023). Hartford Funds uncovered that dividend shares more than doubled the average annual return of non-payers (9.17% versus 4.27%), and did so while exhibiting lower volatility than the benchmark S&P 500.
Given that this is one of the priciest stock markets in history, buying established dividend shares might be a brilliant strategy for 2025.
The following are three of the safest ultra-high-yield dividend shares -- shares with yields that are at least four times greater than the yield of the S&P 500 -- to invest in the new year, yielding an average of 8.53%!
Pfizer: 6.72% yield
The first ultra-high-yield dividend share that merits consideration as a no-brainer buy in the upcoming year is pharmaceutical goliathPfizer (PFE -0.07%). Although Pfizer has been hampered by diminishing sales from its line of COVID-19 treatments, this is a company that's noticeably stronger now than it was at the start of the decade.
For example, even though sales of its blockbuster COVID-19 treatments, Comirnaty and Paxlovid, have retraced from more than $56 billion in 2022 to an estimated $8.5 billion in 2024, this is still $8.5 billion in high-margin revenue that didn't exist when the decade began. In just four years, the company's sales are on track to have increased by more than $19 billion (roughly 46%), based on the midpoint of its 2024 guidance.
To further emphasize this point, Pfizer's cumulative product portfolio, excluding COVID-19 treatments and acquisitions, has continued to expand on an organic basis. Investors seem to be overly focused on the recent downturn in COVID-19 sales and have completely overlooked the bigger picture that shows Pfizer's oncology and specialty care segments are thriving.
Another reason investors can trust Pfizer in the new year is due to its December 2023 acquisition of cancer-drug developer Seagen. This combination significantly broadens Pfizer's product portfolio and oncology pipeline and should result in substantial cost-savings in 2024 and beyond.
It's also worth noting that healthcare is a highly defensive industry. Regardless of how well or poorly the U.S. and global economy are performing, people will continue to fall ill, require medical care, and need prescription medicine. This consistency in demand makes it easier for Pfizer to navigate uncertain environments with a degree of cash-flow predictability.
Pfizer makes for a secure and savvy investment with its yield approaching 7% and its shares valued at less than 9 times forecast earnings per share (EPS) in 2025.
Annaly Capital Management: 13.14% yield
A second ultra-high-yield dividend share that merits serious consideration as a slam-dunk buy in the new year is mortgage real estate investment trust (REIT)Annaly Capital Management (NLY 3.26%). Although Annaly's staggering yield of over 13% might seem unsustainable, it's averaged a roughly 10% yield over the past two decades.
Mortgage REITs might be the most disdained industry on Wall Street. These are companies that aim to borrow at low short-term rates and purchase higher-yielding long-term assets, such as mortgage-backed securities (MBS). This operating model implies that mortgage REITs like Annaly are highly sensitive to changes in interest rates. The steepest rate-hiking cycle in four decades between March 2022 and July 2023 squeezed the net interest margin for Annaly and its peers.
What makes Annaly Capital Management so appealing is that the Federal Reserve has now shifted to a rate-cutting cycle. Declining interest rates tend to decrease short-term borrowing costs and allow mortgage REITs to expand their net interest margin. Historically, Annaly has performed the best when the nation's central bank is lowering rates and making well-telegraphed moves.
Simultaneously, the average yield on the MBSs held in Annaly's portfolio should continue to increase with rates expected to decline at a gradual but steady pace. In essence, the rapid rate-hiking cycle the Fed undertook to curb high inflation has boosted the yields on the MBSs Annaly has been purchasing.
Buyers can have faith in investing in Annaly due to its main focus on agency assets. An "agency" security refers to one that's supported by the federal government in case of default of the underlying asset. This extra layer of protection allows the company to amplify its investments and maintain its generous double-digit yield.
With Annaly Capital Management anticipated to profit from a falling interest rate environment and its stock trading near its asset value, this appears to be the optimal moment for enterprising income hunters to join the journey.
Realty Income: 5.72% return
The third extremely secure high-yield dividend stock to purchase in 2025 is premium retail REIT, Realty Income (O 1.29%). Realty Income distributes its dividend on a monthly basis and has boosted its payout in every single one of the past 109 quarters -- a period of over 27 consecutive years.
Annaly Capital Management isn't the only REIT benefiting from the Fed's dovish tilt in monetary policy. Higher Treasury yields typically draw income seekers away from high-yield equities and towards ultra-safe government bonds. With the central bank reducing interest rates, it should stimulate interest in stocks with higher yields, such as Realty Income.
What's made this retail REIT such a dependable investment for decades is its excellent commercial real estate (CRE) portfolio. It wrapped up the September quarter with nearly 15,500 CRE properties, of which roughly 90% are "resilient to economic downturns and/or sheltered from e-commerce pressures." Realty Income concentrates on stand-alone stores selling goods and services required in any economic situation. This means delinquencies in rental payments are seldom an issue.
Another issue Realty Income doesn't have to worry about is tenant turnover. It ended the September quarter with an occupancy rate of 98.7% and an average occupancy rate of 98.2%, dating back to the beginning of the 20th century. Compared to the median occupancy rate for S&P 500 REITs this century, which is 400 basis points lower (94.2%), this is remarkable.
Although Realty Income's retail-focused CRE model is working well, it hasn't stopped the company from broadening its horizons and making acquisitions. It bought Spirit Realty Capital in January to strengthen its existing property portfolio, and forged a joint venture with Digital Realty Trust last year to develop and rent build-to-suit data centers. Diversifying its rental income stream will only make Realty Income's funds from operations more consistent and secure.
To top it off, Realty Income stock is historically undervalued. Shares are priced at 12.5 times forecast cash flow for 2025, which represents a 25% discount to its average multiple to cash flow over the trailing-five-year period.
In the context of the given text, two additional sentences could be:
- To make the most out of your investment, consider allocating a portion of your money towards dividend shares like Pfizer, Annaly Capital Management, and Realty Income, which have shown a rich history of outperforming non-dividend shares and providing stable returns.
- Keep in mind that investing in stocks, including dividend shares, involves risks, and it's essential to thoroughly research each company and consult with a financial advisor before making any investment decisions.
