In a market where average stock yields are near historic lows, some companies stand out by offering substantial dividend payments to investors. Annaly Capital Management, Western Midstream Partners, and Pfizer currently provide dividend yields ranging from 6.3% to as high as 13.4%, attracting investors focused on income generation.
However, these higher yields are often associated with specific business risks and market challenges. Understanding the financial structure and strategic plans of each company is essential for evaluating the sustainability of their dividend payments.
Key Takeaways
- Annaly Capital Management (NLY) offers a 13.4% dividend yield, supported by investments in mortgage-backed securities, but faces risks tied to interest rate fluctuations and its use of leverage.
- Western Midstream Partners (WES) provides a 9.5% yield from its energy infrastructure assets, with plans for growth through acquisitions and stable cash flow from long-term contracts.
- Pfizer (PFE) has a 6.3% yield and a long history of dividend payments, but is actively working to overcome a future revenue decline from expiring drug patents.
Context for High-Yield Investing
The current investment landscape presents challenges for those seeking income. The average dividend yield for the S&P 500 index is below 1.2%, which is among the lowest levels recorded. This makes companies with significantly higher yields particularly noteworthy.
Stocks offering high dividend yields often operate in specific sectors or face unique circumstances that increase their perceived risk. These can include sensitivity to interest rates, reliance on commodity prices, or upcoming changes in their core business. Therefore, a detailed look at each company's fundamentals is necessary.
Annaly Capital Management (NLY): A 13.4% Yield from Mortgages
Annaly Capital Management is a real estate investment trust (REIT) with a current dividend yield of 13.4%. The company primarily operates in the residential mortgage market, making it one of the largest players in the sector.
Business Operations and Financial Strategy
Annaly's portfolio is diversified across several areas of the mortgage industry. Its main investments are in mortgage-backed securities (MBS) that are guaranteed by U.S. government agencies like Fannie Mae and Freddie Mac. It also invests in residential mortgage loans that do not have government guarantees and holds mortgage servicing rights.
To enhance investor returns, Annaly employs leverage, which involves borrowing funds to increase its investment capacity. This strategy can significantly boost earnings in favorable market conditions. Recent performance shows the company's earnings available for distribution increased from $0.66 per share in the third quarter of the previous year to $0.73 per share in the second quarter of 2025. This growth allowed Annaly to raise its dividend from $0.65 to $0.70 per share.
Understanding Mortgage REITs
Mortgage REITs like Annaly do not own physical properties. Instead, they invest in mortgages and mortgage-backed securities. Their income is primarily generated from the net interest margin, which is the difference between the interest they earn on their investments and the cost of their borrowing. This business model makes them highly sensitive to changes in interest rates.
Associated Risks
While leverage can amplify gains, it also increases risk. The company's earnings have been volatile in the past, leading to dividend reductions during challenging periods. The value of its MBS portfolio and its borrowing costs are directly affected by interest rate changes, making its financial performance subject to market fluctuations.
Western Midstream Partners (WES): A 9.5% Yield from Energy
Western Midstream Partners, a master limited partnership (MLP), currently offers investors a 9.5% dividend yield. The company owns and operates midstream energy assets, which are essential for transporting and processing oil and natural gas.
Stable Cash Flow and Growth Plans
The core of Western Midstream's business consists of pipelines and processing facilities. These assets generate consistent revenue through long-term, fee-based contracts with energy producers. This structure helps insulate the company from the direct volatility of commodity prices.
For the current year, the company projects it will generate between $1.3 billion and $1.5 billion in free cash flow. This amount is expected to be sufficient to cover its dividend payments and fund its capital expenditures for maintaining and expanding its operations.
Western Midstream has stated its goal is to increase its distribution at a low-to-mid single-digit annual rate, supported by its existing cash flow and growth projects.
The company is also pursuing growth through acquisitions. It is in the process of acquiring Aris Water Solutions for $2 billion. This transaction is intended to diversify its business operations and increase its fee-based cash flows, which would further support future dividend growth.
Master Limited Partnerships (MLPs)
MLPs are publicly traded partnerships. Investors, known as unitholders, receive a Schedule K-1 tax form instead of a 1099-DIV. This structure can offer tax advantages but may also add complexity to an investor's annual tax filing.
Pfizer (PFE): A 6.3% Yield from a Pharmaceutical Leader
Pharmaceutical company Pfizer offers a dividend yield of 6.3%. The company has a long and consistent history of returning capital to shareholders, having paid a dividend for 347 consecutive quarters and increased its payout for more than 15 years.
Navigating the Upcoming Patent Cliff
One of the primary reasons for Pfizer's high yield is investor concern over its approaching "patent cliff." By 2028, the company is set to lose patent exclusivity on several key drugs, including Eliquis, Ibrance, and Xtandi. These medications currently generate more than $17 billion in annual sales.
The potential loss of this revenue poses a significant challenge to Pfizer's ability to maintain and grow its dividend in the future. In response, the company has implemented a multi-faceted strategy to prepare for this transition.
Strategic Initiatives for Future Growth
Pfizer is actively working to offset the expected revenue decline through several key initiatives:
- Cost Savings: The company is on track to achieve approximately $7.2 billion in net cost savings by 2027 through improved productivity and operational efficiency.
- Acquisitions: In 2023, Pfizer acquired Seagen for $43 billion to strengthen its oncology drug pipeline. It also spent $1.3 billion this year for rights to a promising cancer therapy from 3SBio.
- Research and Development: Pfizer is heavily investing in R&D with the goal of developing eight potential blockbuster drugs, each with over $1 billion in potential annual sales, by 2030.
If these strategic efforts are successful, Pfizer will be better positioned to manage the loss of revenue from expiring patents and continue its long-standing practice of increasing its dividend for investors.
