3 dividend-paying stocks with ultra-high double-digit yields you can count on to crush inflation


In case you haven’t noticed, most goods and services are much more expensive today than they were a year ago.

Earlier this month, the US Bureau of Labor Statistics reported that the consumer price index for all urban consumers (CPI-U) rose 7% over the 12-month period. . It’s the highest level of inflation in four decades, and it’s been boosted by double-digit increases in energy costs and new/used vehicles. Even spending on food (6.3%) and housing (4.1%) grew at a faster rate than in recent years.

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Dividend stocks can help investors beat high inflation

Sitting on cash when inflation is skyrocketing is not ideal as it will reduce your purchasing power. That’s why it can be so attractive to grow your money in dividend-paying stocks in a high inflation environment. Companies that pay a dividend are almost always profitable and proven. Additionally, according to a report by JP Morgan Asset Management, a division of JPMorgan Chasedividend-paying stocks have a history of easily outperforming their non-dividend-paying counterparts over the long term.

But investing in dividend stocks has its particularity: the higher the return, the lower the real return is often. Since return is a function of payout relative to stock price, a company with a broken operating model and plummeting stock price may offer a hefty payout but be nothing more than a yield trap. In other words, this means that high-yielding stocks (those with yields north of 4%) require additional verification by investors.

While some ultra-high yielding stocks (companies I arbitrarily define as having yields of 7% or more) are bad news, a handful can prove very lucrative for income-seeking patients. In fact, a trio of ultra-high yielding dividend stocks with double-digit yields can be confidently bought by investors right now in an effort to crush the prevailing rate of inflation.

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Annaly Capital Management: return of 11.4%

Mortgage real estate investment trust Annaly Capital Management (NYSE: NLY) is arguably the most secure earner in the double-digit yield category. Annaly has paid out more than $20 billion in dividend income since its inception in 1997 and has averaged a return of around 10% over the past two decades. Its current yield of 11.4% would easily top December’s CPI-U of 7%.

Mortgage REITs are a fairly easy-to-understand business model, although the securities they buy can be somewhat complex. A company like Annaly aims to borrow short-term money at the lowest possible rate and uses that capital to buy higher-yielding long-term assets, such as mortgage-backed securities (MBS). The objective is very simply to maximize the difference in return between the assets in its portfolio and its average borrowing rate. This “difference” is known as the net interest margin.

One reason investors should be excited about Annaly Capital Management’s outlook is our position in the economic growth cycle. If you looked back several decades, you would see that it is common for the yield curve to steepen when the US economy rebounds from a recession. It is in this “steepness” that the yield differential between short-term and long-term US Treasuries widens. When this happens, Annaly is often able to earn higher returns from her MBS purchases, increasing her net interest margin. In short, the business may become more profitable and its book value tends to increase.

Another thing to consider here is that Annaly Capital Management’s investment portfolio is 92% agency stocks. An agency asset is backed by a federal agency in the unlikely event of a default. On the one hand, this additional protection reduces the return that Annaly receives from the MBS that she buys. On the other hand, it allows Annaly to cautiously deploy leverage to maximize her profit potential.

With Annaly trading slightly below book value and maintaining a double-digit yield, it’s a good bet to generate real-money returns for its shareholders after accounting for inflation.

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New York Mortgage Trust: yield of 11.02%

Did I mention how lucrative the mortgage REIT space can be for income-seeking investors? Although I am personally a fan (and shareholder) of Annaly Capital Management, another mortgage REIT that offers an almost identical dividend yield is New York Mortgage Trust (NASDAQ: NYMT) (also known as NYMT).

The operating principle described above for Annaly is true with New York Mortgage Trust. It wants to minimize its borrowing costs, maximize the return on the assets it purchases, and should see its net interest margin increase as the yield curve steepens over time.

But there are fundamental differences between the operation of New York Mortgage Trust and Annaly Capital. For example, while Annaly’s portfolio is full of agency MBS, NYMT tends to buy non-agency residential MBS and commercial MBS, which covers multi-family properties. Although non-agency securities are not protected in the event of default, the trade-off is that NYMT is able to generate a significantly higher average yield from the MBS it purchases. While Annaly’s average yield on interest-earning assets was 2.29% in the third quarter, NYMT’s was nearly triple that figure at 6.39%.

Additionally, without the added protection of an agency-filled MBS portfolio, NYMT does not rely on leverage to increase its profit potential. The company’s total leverage ratio was just 0.3 at the end of the third quarter, compared to Annaly’s economic leverage ratio of 5.8. Although this is not a perfect comparison of apples to apples leverage, it does show how much a company relies on leverage to increase profits and not the other. This means that NYMT’s main catalysts for higher earnings are an increasingly steep yield curve and the refinancing of outstanding loans to reduce its borrowing costs.

Considering New York Mortgage Trust is trading at more than 20% off its book value, it’s a good bet to bounce back while continuing to deliver inflation-crushing returns.

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Mobile TeleSystems: 14.21% efficiency

A third ultra-high-yielding dividend stock that can put inflation in its place is the Russian telecommunications company Mobile telesystems (NYSE:MBT), which is also known as MTS. Although the company’s semi-annual payment is not fixed, stable profitability has kept its return in the 9% range – or in this case, much higher – for the past five years.

Mobile TeleSystems’ fundamental growth segment continues to be its wireless telecommunications and (to a much lesser extent) fixed telephony business. Russia is a big country, which means MTS has a long streak to upgrade its wireless infrastructure to 5G and 4G LTE capabilities in major cities and suburbs. Even with high wireless saturation rates across Russia, users and businesses will likely jump at the chance to upgrade their wireless devices to enjoy faster download speeds. This will boost MTS’ retail operations, as well as its data-driven wireless margins.

Perhaps even more exciting is the fact that MTS has become something of a conglomerate over the past two years. It is being pushed into a number of new, faster growing verticals that are designed to increase its organic growth rate and bind customers to its brand. While year-over-year mobile revenue growth hovered between 2.3% and 5.3% on a quarterly basis in the first nine months of 2021, verticals “beyond Connectivity” delivered MTS revenue growth of 24% in the first nine months of 2021, compared to the prior year period.

While most eyes are likely on MTS Bank and its rapid loan growth, it is the company’s media segment that may offer the brightest future. The total number of MTS media customers rose to 7.8 million at the end of September, up 2.2 million from the year-ago quarter. But the vast majority of that growth came from high-margin over-the-top subscribers (1.8 million in Q3 2020 to 3.5 million in Q3 2021). Customers who remain in the MTS ecosystem are much less likely to cancel any of their services.

Sporting an incredibly high 12-month yield of 14.2% and valued at around 8 times Wall Street’s projected earnings for 2022, Mobile TeleSystems should have no trouble crushing inflation for its shareholders.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.


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