In this article, we will take a look at some of the best dividend stocks with extreme dividend yields.
In 2024, dividend stocks underperformed the broader market as attention shifted to high-flying tech stocks. The Dividend Aristocrat index, which tracks companies with a minimum of 25 consecutive years of dividend growth, rose only 6.3% compared to the broader market’s impressive 27% gain. Despite this, analysts remain positive about the long-term outlook for dividend stocks, as they have historically delivered stronger performance over extended periods.
Analysts believe dividend stocks could see a resurgence in 2025 due to increased market volatility. The last time these stocks outperformed the broader market was in 2022, as concerns over a potential recession pushed investors toward sectors like utilities, consumer goods, and others associated with value stocks and reliable earnings. While there’s no guarantee that recession fears or a bear market will emerge in 2025, the significant rallies of 2023 and 2024—which have contributed to dividend stocks lagging—often lead to heightened volatility, particularly if ambitious growth projections begin to falter. Moreover, as the new administration implements its economic policies, periods of uncertainty and market disruptions could arise. In such scenarios, dividend-paying stocks, seen as stable and dependable, might become more attractive to investors seeking steady returns during turbulent times.
Also read: 10 Best Halal Dividend Stocks To Invest In
Dividend yields play a crucial role in drawing investors to dividend stocks. While analysts often suggest prioritizing stocks with a strong track record of dividend growth, the allure of high yields remains significant. Experts caution against falling for yield traps, urging investors to focus on companies that steadily enhance shareholder returns. Still, proponents of high-yield investments emphasize the importance of dividend yields in an overall investment strategy.
In their study Income Illusions: Challenging the High Yield Stock Narrative, published in the March 2024 Journal of Asset Management, Yin Chen and Roni Israelov analyzed the impact of dividends on investment returns. They divided stocks into high-dividend and low-dividend categories based on the median dividend yield from the prior year. Their research, covering the top 1,500 US stocks from January 1964 to December 2021, revealed that high-dividend portfolios outperformed in both returns and risk. These portfolios achieved an average annual return of 13.8% with 15.6% volatility, compared to low-dividend portfolios, which returned 11.8% annually with a higher volatility of 21.9%. This performance gap resulted in a 3.6% difference in compound annual growth rate. In addition, high-dividend portfolios experienced smaller losses during market downturns. However, while high-dividend stocks generally performed better over the full study period, a long-short investment strategy in these stocks resulted in an annual loss of nearly 1% between 2003 and 2021, with the strongest returns recorded between 1983 and 2002.
Simply chasing high-yield stocks isn’t enough; investors should also examine a company’s balance sheet and overall financial health. Firms with solid financials are better positioned to increase their dividend payouts consistently. The best-case scenario is when a company combines high dividend yields with steady dividend growth—a goal that many businesses have successfully achieved. Given this, let’s take a look at some of the best dividend stocks with extreme dividend yields.
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Our Methodology:
For this list, we used a stock screener and selected dividend stocks with yields ranging from 9% to 23%, as of January 23. Among those stocks, we chose companies that have relatively stable dividend histories, however, a lot of the companies on the list don’t have a consistent record of paying dividends due to their exceptionally high yields. The stocks are ranked in ascending order of their dividend yields, as recorded on January 23. We also mentioned hedge fund sentiment data for these stocks using Insider Monkey’s database of 900 hedge funds as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. The Western Union Company (NYSE:WU)
Dividend Yield as of January 23: 9.17%
The Western Union Company (NYSE:WU) is a Colorado-based multinational financial services company that offers online payment services in over 200 countries and territories. The stock has declined by over 17% in the past 12 months. It was once a leader in its industry, but its dominance waned with the arrival of PayPal and similar competitors. These fintech firms brought faster, cheaper, and more convenient digital payment solutions to the market. In addition, the rise of blockchain technology and cryptocurrency-based transfer services has created a significant obstacle for traditional money transfer businesses.
That said, The Western Union Company (NYSE:WU) has drawn investor interest due to its consistent efforts to return value to shareholders. The company’s board recently approved a $1 billion stock repurchase program with no expiration date. It stated that the timing and amount of repurchases would depend on various factors, including market conditions and stock price. Western Union has a history of actively buying back its shares. In 2023, it allocated around $308 million for stock repurchases, with annual buybacks ranging between $240 million and $553 million from 2018 to 2023.
In addition, The Western Union Company (NYSE:WU) has been making regular dividend payments to shareholders since 2006. In December 2024, the company declared a quarterly dividend of $0.235 per share, which was in line with its previous dividend. With a dividend yield of 9.17% as of January 23, WU is one of the best dividend stocks on our list.
At the end of Q3 2024, 27 hedge funds tracked by Insider Monkey held stakes in The Western Union Company (NYSE:WU), compared with 32 in the previous quarter. The consolidated value of these stakes is nearly $400 million. With over 8 million shares, AQR Capital Management was the company’s leading stakeholder in Q3.
9. Alexander’s, Inc. (NYSE:ALX)
Dividend Yield as of January 23: 9.45%
Alexander’s, Inc. (NYSE:ALX) is an American real estate investment trust company that is engaged in leasing, managing, developing, and redeveloping properties. The company specializes in owning and managing premium retail and office properties, with a primary focus on the New York City metropolitan region. Its operations are managed by Vornado Realty Trust.
In the third quarter of 2024, Alexander’s, Inc. (NYSE:ALX) reported revenue of $55.6 million and its net income came in at $6.7 million. The company’s funds from operations (FFO) totaled $14.6 million, equating to $2.84 per diluted share. This represents a decline compared to the $18.6 million, or $3.63 per diluted share, reported for the same period in 2023.
Alexander’s, Inc. (NYSE:ALX) is one of the best dividend stocks on our list as the company has never missed a dividend since 2008. It currently offers a quarterly dividend of $4.50 per share and has a dividend yield of 9.45%, as of January 23.
As of the close of Q3 2024, 8 hedge funds tracked by Insider Monkey owned stakes in Alexander’s, Inc. (NYSE:ALX), up from 6 in the previous quarter. The consolidated value of these stakes is more than $32.5 million. Among these hedge funds, Renaissance Technologies was the company’s leading stakeholder in Q3.
