It’s Black Friday, the biggest shopping day of the year. Shoppers across the country are weaving their way through the crowds in stores looking for the best deals.
Are there Black Friday sales for income investors? Actually yes. You can even “shop” from the comfort of your own home or wherever you want. Here are three ultra-high yield dividend stocks that are a bargain.
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What better to get you in the holiday spirit than a juicy dividend yield of around 8.7%? That’s what you get Ares Capital (NASDAQ: ARCC).
Such a high yield is typical of Ares. As a business development corporation (BDC), it must return at least 90% of its profits as dividends to shareholders to be exempt from federal income taxes. And as one of the top BDCs, Ares Capital still has enough income to pay out those dividends.
This stock trades at about 10 times forward earnings. However, Ares Capital’s attractive valuation is not due to underlying problems. The company’s business remains strong.
In the third quarter of 2024, Ares made new investment commitments of approximately $3.9 billion with 23 new portfolio companies and 51 existing portfolio companies. The investment-grade profile also improved, with Ares Capital boasting the highest credit ratings in the BDC sector.
Ares Capital has significantly outperformed the S&P500 in total returns since its initial public offering (IPO) in 2004. With growing demand for direct lending and Ares’ solid risk management approach, I expect the stock to continue its winning streak over the next decade and beyond.
Invest in Partners for business products (NYSE:EPD) It can also be a smart move if you’re recovering from overeating on Thanksgiving Day. The midstream energy supplier offers a forward distribution yield of 6.4%. Enterprise has increased its distribution for 26 years in a row.
I think Enterprise Products Partners is another steal. The forward price-to-earnings ratio of 11.3 is well below the expected earnings multiple of almost 15.2 for the S&P 500 energy sector. That’s especially cheap for a company that has delivered an average return on invested capital of 12% over the past decade has achieved.
If you want management to pay close attention to the game, then Enterprise is for you. Approximately 32% of the company’s units are owned by the management team of the general partner and subsidiaries. With this strong alignment with the interests of other unitholders, it is not surprising that Enterprise Products Partners is conservatively managed and has a solid A-rated balance sheet.
One of the best things about Enterprise Products Partners, in my opinion, is the resilience of the company. Inflation is not a major problem for the company: about 90% of its long-term contracts contain provisions to protect against rising costs. Enterprise has also been able to generate strong cash flow per unit in both good and bad times for the oil and gas industry.
Pfizer (NYSE:PFE) looks to be another great Black Friday bargain for income investors. The big pharmaceutical stocks trade at about 8.6 times forward earnings. By comparison, the expected earnings multiple for the average S&P 500 healthcare sector stock is above 18.2.
Like Ares Capital and Enterprise Products Partners, Pfizer’s dividend is firmly in ultra-high yield territory. The future dividend yield is over 6.4%. Pfizer’s management sounds determined to maintain and grow the dividend going forward.
This stock is cheap for a reason. Pfizer’s COVID-19 sales are down significantly. The company also faces the loss of patent exclusivity on several top-selling drugs in the coming years. However, I think this bad news is fully priced into the drugmaker’s stock, while potentially good news is not.
What’s the potential good news for Pfizer? First, the company’s portfolio includes several key growth drivers coming from acquisitions such as migraine therapy Nurtec ODT and cancer drugs Adcetris and Padcev. Second, Pfizer’s pipeline includes 108 candidates in clinical trials, 30 of which are in late-stage research. Several of these programs could be big winners for the company.
Consider the following before purchasing shares in Ares Capital:
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Keith Speights holds positions at Ares Capital, Enterprise Products Partners and Pfizer. The Motley Fool holds and recommends positions in Pfizer. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
Black Friday Sale for Income Investors: These 3 Ultra-High Yield Dividend Stocks Are Bargains Originally published by The Motley Fool
