3 Ultra-High-Yield Dividend Stocks I'm Still Buying

The author highlights three ultra‑high‑yield income names: Realty Income (owns >15,500 properties; forward dividend yield ~5.1%; 30 consecutive years of dividend increases / 112 consecutive quarters), UPS (forward yield ~5.6%; management expects ~ $6.5B free cash flow in the year, dividends of roughly $5.4B and ~ $3B of capex; no dividend cuts since 1999; repositioning after Amazon glide‑down), and Verizon (forward yield ~6.1%; 19 consecutive years of dividend increases; FCF of $20.1B in 2025 vs $19.8B prior year with guidance to ~$21.5B in 2026; recent close of Frontier acquisition cited as growth inflection). The note frames these names as durable income plays with improving cash flow profiles and strategic catalysts that support current dividends.

Analysis

Market Structure: Realty Income (O), Verizon (VZ) and UPS (UPS) are short-term beneficiaries of a yield-seeking rotation: O’s 5.1% yield and distribution track record attract income buyers while VZ’s improving FCF ($20.1B in 2025, guided $21.5B in 2026) de-risks its 6.1% yield. UPS benefits from mix-shift into higher-margin healthcare/SMB volumes even as Amazon volumes glide down; parcel capacity easing pressures pricing power downwards. Cross-asset: higher dividend yields compress equity risk premia vs bonds — REITs and telcos remain rate-sensitive against 10yr moves (watch >4% threshold for REIT headwinds).

Risk Assessment: Key tail risks include a late-cycle recession reducing package volumes and retail rents, a Fed-driven rate spike that inflates cap rates, union/operational shocks at UPS, and integration/credit risk from Verizon’s Frontier deal. Timeframes: immediate (days) — Fed decisions and quarterly prints; short-term (weeks/months) — dividend board approvals, Q1 earnings; long-term (12–24 months) — Verizon FCF realization and Realty’s European expansion. Hidden dependencies: Amazon contract dynamics, net-debt/EBITDA creep, and pension liabilities; catalysts include Fed/OECD data and UPS/Q1 cadence tightening.

Trade Implications: Tactical longs: O and VZ as core income anchors (2–4% position sizes), hedged with short-dated puts; opportunistic UPS exposure funded by trimming high-duration growth. Pair idea: long UPS/short FDX (equal notional) for 6–12 months to capture operations reconfiguration upside vs execution risk at FDX. Options: sell 3-month 5% OTM cash-secured puts on VZ to collect yield, buy 6–12 month put protection on O if 10yr breaches 4%.

Contrarian Angles: Consensus underprices Verizon’s sustained FCF growth — if VZ sustains >6% YoY FCF growth, market should compress yield by 100–200bp over 12–24 months; conversely the market is likely complacent about UPS dividend sustainability given FCF vs stated dividends+capex shortfall (~$8.4B spend vs $6.5B FCF guidance). Historical parallel: telco re-rates post-capex cycles (2014–2016) suggest patient holders can capture a 10–20% re-rating; monitor net leverage thresholds (net debt/EBITDA >4.5x for VZ, >3.5–4x for O) as stop-loss signals.

Key Decisions for Investors

• Establish a 2–3% long position in Realty Income (O) within 10 trading days, target 8–12% total return over 12 months; buy 6-month 10% OTM puts sized at 0.25% portfolio as tail protection. Trim/exit if AFFO declines >10% YoY or net debt/EBITDA >6.5x.
• Establish a 3–4% long position in Verizon (VZ) funded by reducing high-duration growth exposure by 2% immediately; sell 3-month cash-secured puts 5% OTM to collect premium and lower basis. If VZ FCF guidance falls below $20B or net debt/EBITDA rises >5x, cut position.
• Initiate a 1.5–2% long UPS (UPS) and simultaneous 1.5–2% short FedEx (FDX) pair trade (equal notional) for a 6–12 month horizon to capture UPS mix improvement vs FDX execution risk; exit if UPS FCF guidance slips below $5.5B or dividend is suspended/income coverage ratio <1.0.
• Rotate 5% of portfolio from high-duration growth into dividend-heavy sectors (REITs/telecoms) over next 30 days; if 10yr Treasury 30-day average falls below 3.5%, take profits on REIT allocation (+target gain 8–15%); if 10yr rises above 4.0%, add hedges (buy puts) across REIT positions.