When examined over multiple decades, few investing strategies are as profitable as buying dividend stocks.

Companies that dole out a regular payout to their shareholders tend to be profitable on a recurring basis, time-tested, and can offer transparent long-term growth outlooks. Income stocks may not jaw-drop investors with their growth rates, but they’re precisely the type of businesses we’d expect to increase in value over the long run.

Dividend stocks also offer a history of outperformance. A comprehensive study from J.P. Morgan Asset Management, the wealth management division of JPMorgan Chase, found that companies initiating and growing their dividends delivered a 9.5% annualized return between 1972 and 2012, compared to just 1.6% on an annualized basis for nonpaying public companies over the same stretch.

One of the best places to locate high-quality dividend stocks is within the benchmark S&P 500 (^GSPC). With a majority of the S&P 500’s components paying a regular dividend, the broad-based index is a dream come true for income-seeking investors.

However, not all dividend stocks are created equal. Even though high-yield stocks can, occasionally, be yield traps, careful research can uncover some rock-solid income juggernauts.

If you’re looking to generate $600 in super safe annual dividend income, simply invest $8,100 (split equally, three ways) into the following three ultra-high-yield S&P 500 stocks, which sport an average yield of 7.42%.

Verizon Communications: 6.89% yield
The first supercharged income stock that can help you generate $600 in super safe annual income from a starting investment of $8,100 (split in thirds) is telecom company Verizon Communications (VZ).

Telecom stocks have been reeling throughout much of the year because of higher interest rates — most telecom companies carry a lot of debt — and a July report from the Wall Street Journal that suggests lead-sheathed cables still in use by legacy telecoms could lead to hefty replacement costs and financial liabilities.

Although the WSJ report did get the attention of investors, it, in hindsight, seems to be much ado about nothing. Verizon has stated that only a small percentage of its network still relies on lead-clad cables. There’s also no conclusive evidence that lead-sheathed cables represent a health hazard to its workers. Even if Verizon were to eventually face some form of monetary liability, this would be determined by the U.S. court system, which would probably take years to resolve.

Instead of focusing on the “what-ifs” that may never happen, investors should pay attention to what truly matters with Verizon: namely, how the 5G revolution is moving the needle in a positive direction.

Upgrading its infrastructure to handle 5G wireless download speeds is expected to result in more data consumption by consumers. Data is the key margin driver for Verizon’s wireless segment. When coupled with historically low churn rates, Verizon’s traditional cash-cow segment is in great shape.

But it’s not just wireless services doing the heavy lifting. Verizon invested big bucks into mid-band spectrum, with the goal of drawing in new broadband subscribers with 5G speeds. The September-ended quarter marked the fourth straight quarter of at least 400,000 net broadband additions. Though broadband won’t deliver jaw-dropping growth, it’s a source of consistent cash flow, and a means to encourage service-bundling.

Valued at roughly 8 times forward-year earnings, Verizon offers a favorable risk-versus-reward profile for income seekers and value investors.

Whirlpool: 6.16% yield
A second high-octane income stock that can help produce $600 in super safe annual dividend income from a beginning investment of $8,100 (split equally across three stocks) is home-appliance company Whirlpool (WHR), whose quarterly payout has more than quadrupled over the past 12 years.

There’s no question that Whirlpool has dealt with adversity over the past couple of quarters. Above-average inflation rates have pushed up material costs, while consumer spending is being pressured by rapidly rising interest rates and the possibility of a recession in the coming months or quarters. Not surprisingly, Whirlpool now expects adjusted full-year earnings to come in at the low end of its prior guidance of $16 to $18 per share.

While reduced guidance isn’t great news in the short term, Whirlpool has a number of long-term catalysts working in its favor — most of which include levers the company’s management team can pull to meaningfully improve margins.

For starters, Whirlpool has a cost-cutting program in place that should realize $800 million in savings this year. These cost savings are the result of reducing parts complexity (e.g., consolidating similar parts and components) and minimizing supply chain disruptions by standardizing certain designs.

Even more important, Whirlpool is in the process of divesting its European operations. With the approvals to complete said divestment in its back pocket, Whirlpool expects to generate an extra $250 million in annual free cash flow and see its margins rise by 150 basis points once the deal closes in April 2024.

Something else to consider is Whirlpool’s highly cyclical operating model. Though periods of economic instability are inevitable, expansions last disproportionately longer than contractions. This suggests Whirlpool will possess significant pricing power more often than not.

Whirlpool is priced at roughly 6 times adjusted earnings for the current year, which makes it yet another example of a cheap, brand-name, ultra-high-yield S&P 500 stock with a favorable risk-versus-reward profile.

Altria Group: 9.2% yield
The third ultra-high-yield S&P 500 stock that can deliver $600 in super safe annual dividend income from an $8,100 starting investment split equally among three stocks is tobacco company Altria Group (MOs). Altria has increased its dividend 58 times over the past 54 years, which makes it a Dividend King.

The clear challenge for tobacco companies like Altria is that consumers are more aware of the potential health hazards of long-term tobacco use than they’ve ever been. Since the mid-1960s, U.S. adult-use smoking rates have fallen from around 42% to just 11.5% as of 2021, according to the Centers for Disease Control and Prevention (CDC). A shrinking pool of consumers has meant reduced cigarette shipments for Altria and its peers.

Despite this challenge, Altria has catalysts it can rely on to move the needle in its favor.

At the top of the list is Altria’s pricing power. Tobacco contains nicotine, an addictive chemical. The addictive quality of tobacco products allows Altria and its peers to increase their prices without driving away their customers. It also doesn’t hurt that premium brand Marlboro, which is owned by Altria, accounts for a greater than 42% share of the cigarette market, which makes it easy to increase its prices and offset any decline in cigarette shipment volume.

Altria’s future is also dependent on expanding its sales channels. In June, it completed a $2.75 billion acquisition of electronic-vapor company NJOY Holdings. What makes NJOY special is that it’s received a half-dozen marketing granted orders (MGOs) from the U.S. Food and Drug Administration for various products and devices. MGOs authorize e-vapor products to be sold, while non-MGO products run the risk of being pulled from store shelves. The vast majority of e-vapor products and devices are non-MGO.

Additionally, Altria would find itself in a favorable position if the U.S. were to legalize cannabis at the federal level. It invested $1.8 billion in Canadian licensed producer Cronos Group in 2019. Though this equity stake has thus far been a flop, the federal rescheduling of cannabis in the U.S. would allow Altria to play a key role in helping Cronos develop, market, and distribute pot products throughout North America.

Keeping with the theme, Altria Group is inexpensive at 8 times forward-year earnings. When coupled with a steady share repurchase program, it offers all the tools to fatten long-term investors’ pocketbooks.

— Sean Williams

Where to Invest $99 [sponsor]
Motley Fool Stock Advisor's average stock pick is up over 350%*, beating the market by an incredible 4-1 margin. Here’s what you get if you join up with us today: Two new stock recommendations each month. A short list of Best Buys Now. Stocks we feel present the most timely buying opportunity, so you know what to focus on today. There's so much more, including a membership-fee-back guarantee. New members can join today for only $99/year.

Source: The Motley Fool