It's Black Friday, the biggest shopping day of the year. Shoppers across the country are elbowing their way through the crowds at stores in search of the best deals.
Are there any Black Friday sales for income investors? Actually, yes. You can even "shop" from the comfort of your own home or anywhere else you prefer. Here are three ultra-high-yield dividend stocks that are bargain buys.
1. Ares Capital
What better to put you in the holiday spirit than a juicy forward dividend yield of around 8.7%? That's what you'll get with Ares Capital (NASDAQ: ARCC).
Such a high yield is par for the course with Ares. As a business development company (BDC), it must return at least 90% of earnings to shareholders as dividends to be exempt from federal income taxes. And as one of the best BDCs, Ares Capital continues to have plenty of earnings to pay those dividends.
This stock trades at roughly 10 times forward earnings. Ares Capital's attractive valuation isn't due to any underlying problems, though. The company's business remains strong.
In the third quarter of 2024, Ares made new investment commitments of around $3.9 billion with 23 new portfolio companies and 51 existing portfolio companies. Its investment-grade profile also improved, with Ares Capital boasting the highest credit ratings in the BDC sector.
Ares Capital has significantly outperformed the S&P 500 in total returns since its initial public offering (IPO) in 2004. With the growing demand for direct lending and Ares' solid risk management approach, I expect the stock will be able to keep up its winning ways over the next decade and beyond.
2. Enterprise Products Partners
Investing in Enterprise Products Partners (NYSE: EPD) could also be a smart move as you're recovering from eating too much on Thanksgiving Day. The midstream energy provider offers a forward distribution yield of 6.4%. Enterprise has increased its distribution for 26 consecutive years.
I think Enterprise Products Partners is another bargain. Its forward price-to-earnings ratio of 11.3 is well below the forward earnings multiple of nearly 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 last 10 years.
If you like management to have lots of skin in the game, Enterprise should be right up your alley. Roughly 32% of the company's units are owned by the management team of its general partner and affiliates. With this strong alignment with other unitholders' interests, it's 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 view, is the resilience of its business. Inflation doesn't present a big problem for the company, with around 90% of its long-term contracts containing provisions to protect against rising costs. Enterprise has also been able to generate strong cash flow per unit during both good and bad times for the oil and gas industry.
3. Pfizer
Pfizer (NYSE: PFE) appears to be another great Black Friday bargain buy for income investors. The big pharma stock trades at around 8.6 times forward earnings. By comparison, the forward earnings multiple for the average stock in the S&P 500 healthcare sector is north of 18.2.
As was the case with Ares Capital and Enterprise Products Partners, Pfizer's dividend is firmly in ultra-high-yield territory. Its forward dividend yield tops 6.4%. Pfizer's management sounds committed to maintaining and growing the dividend in the future.
This stock is cheap for a reason. Pfizer's COVID-19 revenue has declined significantly. The company also faces the loss of patent exclusivity for multiple top-selling drugs over the next few years. However, I think this bad news is fully priced into the drugmaker's shares, while potential good news isn't.
What's the potential good news for Pfizer? First, the company's lineup features several key growth drivers picked up from acquisitions such as migraine therapy Nurtec ODT and cancer drugs Adcetris and Padcev. Second, Pfizer's pipeline includes 108 candidates in clinical testing, 30 of which are in late-stage studies. Several of these programs could prove to be big winners for the company.
Don’t miss this second chance at a potentially lucrative opportunity
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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of November 25, 2024
Keith Speights has positions in Ares Capital, Enterprise Products Partners, and Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
