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For more than a century, Wall Street has been a wealth-building machine. Despite dozens of stock market corrections and bear markets, the average annual return of stocks crushes the annualized long-term returns of Treasury bonds, gold, oil, and housing.

While there are lots of ways to make money in the stock market, buying and holding dividend stocks has consistently been one of the most successful strategies.

Last year, Hartford Funds released a report that, in collaboration with Ned Davis Research, examined the average annual returns of dividend stocks vs. non-payers over a five-decade stretch (1973-2022). What researchers found was an overwhelming outperformance for the income stocks. Dividend payers averaged a 9.18% annual return over 50 years, while non-payers delivered a more modest 3.95% average annual return.

Five one hundred dollar bills neatly staggered atop each other. — Image source: Getty Images.

What makes income stocks special is that they tend to be profitable on a recurring basis, time-tested, and can offer highly transparent long-term growth outlooks in many instances. Dividend stocks may not be highfliers like the “Magnificent Seven” but can generally increase in value over time and make their patient shareholders richer.

Although studies have shown that dividend stocks with really high yields can sometimes be more trouble than they’re worth, deals among ultra-high-yield stocks can be found. If you want to bring home $500 in super safe annual dividend income, simply invest $5,350 (split equally three ways) into the following three ultra-cheap and ultra-high-yield stocks, which sport an average yield of 9.35%!

Enterprise Products Partners: 7.33% yield

The first time-tested and exceptionally cheap income stock that can help you bring home $500 annually from a starting investment of $5,350 that’s split three ways is energy company Enterprise Products Partners (NYSE: EPD). Enterprise has raised its base annual distribution in each of the past 25 years.

Some investors are liable to be skittish about putting their money to work in the oil and gas industry, given what happened just four years ago. A historic demand drawdown caused by COVID-19 pandemic lockdowns crippled drilling companies and sent commodity prices markedly lower. However, Enterprise Products Partners’ operating performance was largely spared from this volatility.

What makes Enterprise such a safe investment is its role as an energy middleman. It’s a midstream company that operates more than 50,000 miles of pipeline and can store more than 260 million barrels of liquids.

Its secret sauce, if you will, is the structure of its contracts. Enterprise generates around three-quarters of its gross operating margin from long-term, fixed-fee contracts with upstream drilling companies. The fixed-fee aspect ensures that inflation and spot-price volatility for crude oil won’t adversely impact its operating cash flow. In other words, management has cash-flow visibility of at least a year into the future.

Visibility is important since it’s what guides management’s ability to grow the business. Having a transparent outlook gives Enterprise’s management team the confidence to make acquisitions and undertake more than $6 billion in major projects (mostly geared toward natural gas liquids).

Despite being a leading midstream energy company and benefiting from a higher spot price for crude oil, Enterprise Products Partners remains inexpensive. Shares can be purchased right now for less than 10 times forward-year earnings, which represents about a 10% discount to its five-year average.

PennantPark Floating Rate Capital: 10.99% yield

A second ultra-cheap (less than nine times forward earnings), ultra-high-yield dividend stock that can help you generate $500 in exceptionally safe yearly income from a beginning investment of $5,350 (split three ways) is little-known business development company (BDC) PennantPark Floating Rate Capital (NYSE: PFLT). PennantPark pays its dividend on a monthly basis and raised its payout twice in 2023.

BDCs are companies that invest in the debt or equity (common and preferred stock) of middle-market businesses (i.e,. generally small and unproven companies). While PennantPark has invested approximately $210 million in various equities as of the end of December, its $1.09 billion in debt securities held means it’s primarily a debt-focused BDC.

The answer to “Why focus on debt for unproven businesses?” comes down to yield. Since smaller businesses have limited options in traditional debt and credit markets, PennantPark is able to generate well-above-market yields on loans to middle-market companies. As of the end of 2023, the company’s debt-securities portfolio boasted a weighted average yield on debt investments of 12.5%.

But it’s not just the aggregate yield that’s impressive. The entirety of the company’s loan portfolio sports variable rates.

With the Federal Reserve undertaking the most aggressive rate-hiking cycle in four decades, PennantPark’s average weighted yield on its debt securities has catapulted higher by 510 basis points since Sept. 30, 2021 to the aforementioned 12.5%. As long as the nation’s central bank holds steady on above-average interest rates, PennantPark will be rolling in dough.

Another interesting aspect of PennantPark’s business is that it’s done an excellent job of preserving its investment capital and de-risking its aggregate $1.27 billion portfolio. Including common and preferred stock investments, it’s put its money to work in 141 companies. That’s an average investment size of only $9 million, which ensures that no single investment is critical to PennantPark’s success.

Furthermore, 99.99% of the company’s $1.09 billion loan portfolio is held in first-lien secured debt. First-lien secured debtholders are first in line for repayment in the event that a borrower seeks bankruptcy protection. The thing is, just one company in its entire portfolio is currently delinquent, representing just 0.1% of the value of its overall portfolio at its cost basis.

A small pyramid of tobacco cigarettes set atop a thin bed of dried tobacco. — Image source: Getty Images.

Altria Group: 9.73% yield

The third ultra-cheap, ultra-high-yield dividend stock that can produce $500 in super safe annual dividend income from an initial investment of $5,350 that’s split across three stocks is tobacco company Altria Group (NYSE: MO). Altria has raised its payout 58 times in 54 years and is yielding close to 10%.

The clearest headwind for tobacco companies is that consumers have wised up about the potential dangers of long-term tobacco use. Adult cigarette smoking rates in the U.S. have fallen from around 42% in 1965 to 11.5% in 2021, according to the Centers for Disease Control and Prevention. A shrinking pool of consumers is certainly a concern.

The good thing for Altria is that it sports strong pricing power. Tobacco products contain nicotine, which is an addictive chemical. Even with fewer consumers smoking cigarettes and shipments declining, Altria has been able to somewhat or fully offset sales declines by increasing the price on its products.

Altria accounted for nearly a 47% share of the cigarette market in the U.S. in 2023. The bulk of this comes from premium brand Marlboro, which represented 42.1% of the U.S. cigarette market. It’s easy to raise prices when you’re the undisputed leader.

However, Altria’s future rests on its ability to expand its operations beyond tobacco and into smokeless/alternative products. The company’s acquisition of electronic-vapor company NJOY Holdings in June 2023 is a perfect example.

While Altria flubbed badly with its large investment in e-vapor company Juul, it didn’t make the same mistake twice when it acquired NJOY. NJOY has received six marketing granted orders (MGOs) from the U.S. Food and Drug Administration, which serve as authorizations for those e-vapor products to be sold.

The vast majority of e-vapor products lack MGOs and could therefore be pulled from retail shelves at some point in the future. NJOY benefits from the safety of its positioning, as well as Altria’s decades of marketing and product-development expertise.

Lastly, the valuation makes sense. Though Altria is never going to be the growth story it was decades ago, it’s still capable of growing its annual earnings per share (EPS) by a low- to mid-single-digit pace. That makes its forward price-to-earnings ratio of less than 8 a bargain.

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Sean Williams has positions in PennantPark Floating Rate Capital. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

Want $500 in Super Safe Annual Dividend Income? Invest $5,350 Into the Following 3 Ultra-Cheap, Ultra-High-Yield Stocks. was originally published by The Motley Fool

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China is making automakers around the world nervous. Its domestic carmakers—helped by generous state subsidies—are churning out alarmingly inexpensive electric vehicles at a relentless pace, saturating their home market and threatening EV manufacturers overseas.

But they might be getting carried away, a high-ranking Chinese official suggested on Friday.

Xin Guobin, vice-minister of industry and information technology, said that Beijing would take “forceful measures” to address what he called “blind” construction of new EV projects—i.e., not justified by demand—by some Chinese carmakers and local authorities, as reported by the Financial Times.

His comments come amid pressure from Europe in particular over a flood of low-priced Chinese EVs hitting its markets.

“Their price is kept artificially low by huge state subsidies. This is distorting our market,” European Commission President Ursula von der Leyen said in September. “And as we do not accept this distortion from the inside in our market, we do not accept this from the outside.”

To be sure, it’s more the threat posed by Chinese EVs in the long run than the current reality that has EU officials concerned. In Germany, the center of EU automaking, Chinese EVs still have just a small sliver of market share. But it’s growing fast, and that has many in Europe’s automotive powerhouse worried amid fresh economic woes, even as German carmakers—who do brisk business in China—have warned against tariffs on Chinese EVs for fear of retaliation by Beijing.

EU probes Chinese subsidies

In the weeks ahead, EU investigators will visit Chinese EV makers BYD, Geely, and SAIC as part of a probe into whether they have an unfair advantage thanks to government subsidies. Their visits—part of an EU probe announced in September and set to run for 13 months—will help determine whether the EU imposes higher tariffs to protect European carmakers.

Of course, more than subsidies are at play. “The Chinese car companies are extremely competitive,” Tesla CEO Elon Musk said at the New York Times Dealbook conference last year. “China is super good at manufacturing, and the work ethic is incredible.”

Musk suggested that Chinese companies will emerge as dominant players in the global automotive industry—a sharp departure from when he laughed about the quality of BYD cars in 2011.

Chinese EV makers also have supply-chain efficiencies that are tough to beat. BYD, for instance, keeps its costs low partly by owning the entire supply chain of its EV batteries, significant since a battery accounts for roughly 40% of an electric vehicle’s price. Backed by Warren Buffett’s Berkshire Hathaway, the Chinese carmaker recently overtook Tesla in global sales of electric vehicles.

Whereas Chinese EV makers face 27.5% tariffs in the U.S., in the EU that’s just 10%. That’s encouraged them to target Europe as their home market gets increasingly crowded, although they’re also expanding quickly elsewhere, including in Southeast Asia and Latin America.

Last year, an Allianz Trade report stated that China’s EV makers pose a significant threat to European carmakers, particularly the “automotive-dependent economies of Germany, Slovakia and Czech Republic.” It called for higher tariffs on Chinese EVs, estimating that by 2030 they could cost Europe’s carmakers 7 billion euros per year in lost profits.

In the EU, Chinese-made EVs typically sell for 20% less than those made in the bloc, and their share of the EV market, which has grown to 8%, could reach 15% by 2025, according to Reuters.

The coming wave of Chinese EVs in America

Last year in China, BYD launched the Seagull, an EV with a cutthroat price of about $11,000. It quickly became one of the best-selling EVs in China. The Seagull and similar models from China could prove to be a disruptive force in overseas markets.

Chinese EVs might also become a common sight on American roads, eventually.

“No one can match BYD on price. Period,” Michael Dunne, CEO of Asia-focused car consultancy Dunne Insights, told the Financial Times earlier this month. “Boardrooms in America, Europe, Korea, and Japan are in a state of shock.”

Made-in-China EVs are sold in more than 100 countries, and the U.S. is the only market where they “have not yet really begun a big assault,” ZoZo Go CEO Michael Dunne, whose advisory firm specializes in the Chinese EV industry, told the Wall Street Journal.

Chinese EV makers are now searching for manufacturing sites in Mexico, which has a free trade agreement with the U.S. and Canada and could serve as a backdoor to those markets, a scenario American lawmakers have warned about.

Meanwhile, U.S. automakers have largely scaled back their EV ambitions—after making large initial investments—as demand has not been as great as anticipated. In a sign of the times, perhaps, all four of America’s largest carmakers passed on running Super Bowl ads this year—the first time that’s happened in 23 years.

But the threat from China has industry leaders on edge. Last summer, Ford executive chairman Bill Ford Jr. warned that American automakers are “not quite yet ready” to compete with Chinese rivals on EVs. “They developed very quickly, and they’ve developed them in large scale, and now they are exporting,” he told CNN. “They are not here, but they will come here we think at some point and we need to be ready.”

This story was originally featured on Fortune.com