3 Monster Dividend Stocks With Yields as High as 14.4%

Key Points

• AGNC Investment's monthly dividend yields a towering 14.4%.

• LyondellBasell Industries has increased its monster dividend for 15 straight years.

• Delek Logistics Partners recently extended its distribution growth streak to 50 quarters in a row.

• 10 stocks we like better than AGNC Investment Corp. ›

The dividend yield on the S&P 500 is near a record low of less than 1.2%. However, while most stocks offer low dividend yields these days, there are some outliers.

AGNC Investment (NASDAQ: AGNC), LyondellBasell Industries (NYSE: LYB), and Delek Logistics Partners (NYSE: DKL) currently offer monster dividend yields as high as 14.4%. Here's a closer look at these big-time dividend stocks.

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A high-risk, high-reward payout

AGNC Investment leads the way with a 14.4% yield. The real estate investment trust (REIT) invests in Agency residential mortgage-backed securities (MBS), pools of residential mortgages protected against credit losses by Fannie Mae, Freddie Mac, and Ginnie Mae. The company invests in MBS on a leveraged basis primarily through repurchase agreements.

This investment strategy can be very lucrative. AGNC can currently earn a return on equity of 18% to 20% on new investments. That's more than enough to cover its cost of capital (operating expenses plus dividend payments. As long as its returns exceed those costs, the REIT can continue paying its massive monthly dividend, which it has maintained for more than five consecutive years.

However, the REIT's high return strategy has a high risk profile. If market conditions deteriorate and returns fall below its costs, the REIT might need to cut its big-time dividend. That has happened several times in the past.

Navigating the low point in the cycle

LyondellBasell Industries' dividend currently yields 10.5%. The leading global chemicals company has managed to increase its payout for 15 straight years, including giving investors a 2.2% raise in March. This dividend growth "reaffirms confidence in our disciplined capital deployment, our value-driven strategy and our capability to navigate the cycle during these challenging times," stated CEO Peter Vanacker at the time.

Prolonged market headwinds have weighed on Lyondell Basell's earnings and stock price, the latter of which has driven up its dividend yield. The company is working to offset the industry headwinds by managing costs and selling non-core assets. It's currently working on a strategy to drive a more than $1.1 billion improvement in its cash flow by next year through reductions in fixed costs and capital expenditures. It has also agreed to sell several European assets to boost its cash position.

These moves allow LyondellBasell Industries to continue returning cash to investors while it awaits an eventual market recovery. It returned over $500 million to investors in the second quarter through dividends and share repurchases. While the company navigates the current market challenges, conditions must eventually start to improve. If they don't, LyondellBasell might need to cut its dividend to retain additional cash for debt reduction, share repurchases, and growth investments.

A high-octane payout

Delek Logistics Partners has a 9.8% yield. The master limited partnership's (MLP) energy midstream assets form the backbone infrastructure to support the refining and marketing operations of Delek US Holdings. The company also has a growing midstream business to support third-party customers.

The MLP's energy midstream assets generate fairly stable cash flow backed by long-term contracts with Delek and third-party customers. It currently produces enough cash to cover its high-yielding payout by more than 1.3 times. This enables it to retain some funds to support new investments. Delek Midstream has made several new investments in recent months, including building the new Libby 2 gas processing plant and acquiring H2O Midstream and Gravity Water Midstream, all of which are helping expand its third-party capabilities.

The rising cash flows from those growth investments have enabled Delek to continue increasing its monster payout. The MLP recently extended its distribution growth streak to 50 quarters in a row. It has the financial flexibility to continue expanding, which should support future distribution increases.

Big-time income streams

AGNC Investment, LyondellBasell Industries, and Delek Logistics Partners all currently have monster dividend yields. That makes them highly attractive to those seeking a lucrative income stream. However, these high-yielding payouts all have higher risk profiles, which is something investors need to consider before adding them to their portfolios.

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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Delek Us. The Motley Fool has a disclosure policy.