Could you imagine if there was something that paid over 7%? There is something that legitimately does, ultra high yield dividend stocks. While they do carry the ability to generate high levels of income, they also carry a high amount of risk. Ultra high-yield dividend stocks usually pay dividend yields over 7% and in many cases can go over 10% yield. For some perspective, if you have a $10 stock that yields 10%, that is an annual yield of $1. If you owned 1000 shares of this stock that would be $1100 generated by dividends every year.
Like I mentioned earlier, ultra high yields are a very fast way to grow your cash flow of dividends using a small amount of money. If you compare this to “safer” stocks you can be looking at 1–4% yields. Since you won’t be looking at stock prices to go up for these you can compound the dividends that you receive to either buy more shares of the same stock or to buy different stocks that you are interested in. These stocks are especially appealing when interest rates fall (savings accounts mostly). Because the yield is so high its easier for your portfolio to keep up with inflation.
There are a fair number of risks when investing in ultra high yield dividend stocks. One is the sustainability of the yield especially when the yield is over 100%. As the yield continues to climb the risk increases as the thing that keeps the share price up is the yield so if there is a cut it is very bad for shareholders. Generally because the yield is the only reason to hold the stock after it falls, its hard to justify holding it and potentially have a big loss of capital.
Are high yields good? Yes, they are, they have a place in many portfolios due to the cash flow. Your whole portfolio generally shouldn’t be all ultra high yield stocks. But when done in careful selection, they can provide a powerful boost to your portfolio.