Top Dividend Stocks Providing High Returns for Investors in March
Here's a rewritten version of the article with a less formal tone, integrated insights from the enrichment data where applicable, clearer structure, and revised sentence structure for originality:
If you've ever dreamed of growing your nest egg without putting in much active effort, consider the world of dividend stocks. These wealth-building gems have been consistently outperforming other assets for over a century.
Dividend stocks: what makes them special?
So, what's the secret sauce behind dividend stocks? These companies have proved their mettle by consistently dishing out dividends to shareholders and typically boast a strong profit record as well as a clear growth outlook.
The cherry on top? Compared to their non-dividend counterparts, these stocks have historically shown superior performance - and with less volatility to boot. The analysts at Hartford Funds collaborated with Ned Davis Research to understand why over a 50-year period (1973-2023). Spoiler alert: Dividend payers more than doubled the annual return of non-payers (9.17% vs. 4.27%).
Just a word of warning - not all high-yield stocks are created equal. While ultra-high-yield ones (four or more times the S&P 500's yield) can be tempting, they generally come with higher risks that may make them trouble. But don't despair - there are income gems out there; you just need to do your homework.
Two scorching-hot high-yield stocks for March
Here are two high-yield dividend stocks - sporting an average yield of 8.57% - that income seekers can confidently buy in March:
Verizon Communications: 6.29% yield
Pricey market? No worries! Telecom stalwart Verizon Communications (VZ 2.63%) is here to save the day. With a hearty 6.3% yield, it's ready to make patient investors richer in March and beyond.
What's the catch then? Well, Verizon isn't a high-growth tech stock or steeped in AI tech. Its low-single-digit growth rate might seem lackluster compared to the race cars of the current bull market rally. And there's the elephant in the room: Verizon's debt-laden balance sheet.
But fear not! Verizon is tackling these issues and looking to emerge as a stronger, leaner company.
To boost its organic growth, it's expanding its 5G wireless network and emphasizing consumer and enterprise broadband services. The 12.3 million broadband connections it closed out Q4 with represent a 15% year-over-year increase - looking good!
Verizon's balance sheet has also improved significantly in the past two years. In 2022, it had $130.6 billion in total unsecured debt, while by Dec. 31, 2024, this had been reduced to $117.9 billion. Although more work needs to be done, the company's financial flexibility is improving, and its dividend yield is rock-solid.
When it comes to valuation, Verizon looks like a steal amid a historically pricey market. Its forward P/E multiple is below 9, meaning it's a much more affordable choice compared to pricey peers.
PennantPark Floating Rate Capital: 10.85% yield
Off-the-radar BDC PennantPark Floating Rate Capital (PFLT -1.27%) should be on income seekers' radar. With a yield approaching an eye-popping 11%, it's a gift that keeps on giving every month.
PennantPark invests in the equity (common/preferred stock) and/or debt of middle-market companies, focusing mainly on debt investments. As of the end of Q1 2022-23, 91% of its $2.194 billion investment portfolio was invested in debt securities, and the rest in various common and preferred equity positions.
Why focus on debt securities, you ask? Higher yields, of course. Middle-market companies often have to pay above-average rates for loans, and PennantPark's investment strategy allows it to capitalize on this. Its weighted average yield on debt investments had a stunning 10.6% at the end of 2023.
So, what's driving this high-octane yield for PennantPark Float? Interest rate variability! The entire debt portfolio has variable rates, and previously, the Fed's aggressive rate hikes pushed the weighted average yield notably higher. With the Fed now in a rate-easing cycle, it has eased the pressure, but don't count on this lasting forever - this step-down in rates will be slow.
PennantPark's loan-vetting team deserves kudos for protecting the company's principal, even when handling unproven businesses. As of Dec. 31, only two companies were delinquent with payments, totaling a mere 0.4% of the portfolio's total cost basis.
Investment size is another key factor: PennantPark Floating Rate has put capital to work in 159 companies, averaging $13.8 million per investment. This ensures that no single investment can jeopardize the overall portfolio.
With a forward P/E multiple of less than 9 and trading right near book value, PennantPark Floating Rate Capital looks like a smart buy for income seekers.
- A businessperson who's keen on expanding their nest egg without excessive active effort might find solace in the realm of dividend stocks, which have consistently outperformed other assets for over a century.
- Dividend stocks' allure stems from the fact that these companies consistently distribute dividends to shareholders, often while boasting a strong profit record and a clear growth trajectory, making them historically superior performers, even with less volatility.
- However, not all high-yield stocks offer the same levels of competence; while ultra-high-yield stocks can seem appealing, they often come with increased risks that could potentially cause trouble for investors.
- A microcap company in the business of investing in the equity and debt of middle-market companies, PennantPark Floating Rate Capital, should intrigue income seekers, offering a yield nearing 11% and presenting a unique opportunity for passive, steady income.
