These 3 Excellent Income Stocks Have Dividend Yields of Up to 12%

Bearish investors continue to warn of an impending correction, the same warning since last summer of a 30% to 50% correction.

And that was before Donald Trump was elected president or the Federal Reserve hesitated to raise interest rates this year. It seems that even the U.K.'s vote in June to exit the European Union couldn't trigger the calamity for which these broken clocks called.

Although a correction isn't likely imminent, investors should take precautions by investing in dividend-paying stocks. They are a smart bet for income in a low-yield and risky world.

Even in the case of a correction, these stocks will generate a reliable income stream and present an opportunity to buy more shares at a discount to generate even more income. These three stocks offer big dividend yields of 12%.

1. Armour Residential (ARR)
This real estate investment trust invests in residential mortgage-backed securities. Mortgage-backed securities earned notoriety following the 2008 financial crisis as the culprit of the sub-prime mortgage collapse.

The reality is that there is nothing inherently riskier about a mortgage-backed security than any other derivative, which is a security traded on another underlying security.

In fact, the mortgage-backed securities in which Armour Residential invests in are less risky than the most commonly traded derivatives such as stock options. That is because Armour Residential's portfolio consists of mortgage-backed securities backed by quasi-government agencies such as Fannie Mae or Freddie Mac.

The company's share price is flat for the year at about $21.85, and with a 11.73% yield paid out monthly the stock is an attractive buy for income investors with dividend reinvestment plans.

That is because these plans reinvest dividends immediately back into the stock, which increases the compounding effect of the dividend and avoids commission charges for buying new shares. It is a time-proven way to steadily build wealth.

2. Frontier Communications (FTR)
This oversold income stock offers a dividend yield of 11.73%.

Ever since the company cut its dividend in 2012 its stock has been unable to stay above $7 for a substantial length of time.

The completion of its $10 billion purchase of Verizon Communications' assets last year provided context to the dividend cut as the company took on significant debt to pay for the purchase.

Even as the company's operating income grew by more than $1 billion compared with 2014, significant interest expenses are responsible for the losses. This is problematic because the company's customer volume fell 3% in the recent third quarter.

If Frontier Communications is unable to fix customer turnover, investors won't be able to depend on the company's dividend beyond 2018. However, if the company does stem its customer bleeding, the stock, which trades at less than $3.50, is a bargain income play.

3. New Residential (NRZ)
This REIT invests in excess mortgage servicing rights. Unlike most companies with high levels of debt that fear higher interest rates will bite into their profits, New Residential's servicing rights increase in value as rates increase.

Yielding 11.44% the company's stock is up nearly 27% this year to $15.50. It is the most dependable high-yielding stock in this uncertain rate environment, and the fact that it has benefits from higher rates is a big plus.

The company has increased its dividend every year for the past four years by about 32% on average annually.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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