Dividend stocks are the foundation upon which great retirement portfolios are built. Over the long run, dividend-paying stocks handily outperform their non-dividend-paying peers, and they offer a host of other advantages.
For example, dividend stocks are usually beacons of profitability, stability, and time-tested business models. Put in another context, there’s no reason a board of directors would choose to continue sharing a portion of a company’s profits with shareholders if that board didn’t foresee continued growth and/or profitability in the future.
Dividend payouts can also calm investors’ nerves during inevitable stock market corrections, as well as be reinvested back into more shares of dividend-paying stock via a dividend reinvestment plan, or Drip). Drips are a strategy money managers commonly employ to compound wealth for their clients over the long term…
These ultra-high-yield stocks pack a punch with reasonable low risk
But targeting income stocks comes with a dilemma as well. We, as investors, want the highest yield with as little risk as possible. Yet statistical data shows that risk and yield tend to be correlated. That means ultra-high-yield stocks tend to be the riskiest investments of them all.
But if you’re willing to dig deep enough, you can uncover a basket of diversified ultra-high-yield dividend stocks that could actually outperform the historic average annual return of the stock market of 7% (inclusive of dividends paid and adjusted for inflation). The following basket of five ultra-high-yield companies currently sports an average annual yield of 9.8%, which would lead to a doubling of your invested capital (assuming static share prices) in just over seven years.
Alliance Resource Partners: 10.4% dividend yield
Generally speaking, coal is an industry most folks avoid given its reduced emphasis in the U.S. energy market, the rise of renewable energy choices, weaker oil prices, and the fact that most coal companies drowned themselves in debt in the late 2000s. None of these concerns is really a problem for Alliance Resource Partners (NASDAQ:ARLP).
Alliance Resource Partners’ net debt of $469 million in much lower than its peers, and it’s not much of a concern with $694 million in operating cash flow generated over the trailing 12-month period.
More so, this is a company that tends to reduce its operating cash flow uncertainty by focusing on securing volume and price commitments well in advance. With approximately 44 million tons of coal expected to be produced in 2019, the company already has 36.8 million tons committed at a specific price, with another 18 million locked in for 2020. These future commitments mean minimal exposure to what can be a volatile wholesale coal market.
Lastly, Alliance Resource Partners has really…
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