1 Stock That's Quietly Paying Investors a Monster 5.5% Dividend Yield

Following some 2015 tinkering with the game format, the odds of winning a Powerball jackpot lengthened to 1-in-292.2 million from 1-in-175.2 million. Given those ratios, it's pretty clear that buyers of lottery tickets aren't investing (and they are also fighting some extremely long odds).

Even with odds clearly stacked against them, Americans continue to indulge in the lottery. In 2023, the average American doled out $320 on lottery tickets. Clearly, that cash would be better allocated to a basic index fund, where it can generate long-term returns, particularly when compounded to the tune of $320 per year, but some folks just like to shoot for the stars.

What if there were a way to actually profit from the lottery without hitting jackpots? There is, thanks to Brightstar Lottery (NYSE: BRSL), a relatively anonymous mid-cap stock with an eye-catching dividend yield of 5.51%.

This overlooked lottery stock has a big dividend yield. Image source: Getty Images.

Brightstar could be a bright spot for dividend investors

Brightstar was previously known as International Game Technology (IGT). The name change was implemented after the company sold its digital gaming and slot machine businesses to Apollo Global Management in a deal that wrapped up in July.

That makes Brightstar, the company behind Powerball, a pure-play lottery stock. It operates eight of the world's 10 largest lotteries. While lottery isn't nearly as "sexy" as internet casinos, prediction markets, or sports betting, dividend investors don't need glitz and glamor. They demand dependability and the potential for payout growth. Brightstar can deliver.

Through the Apollo transaction, the company generated $4 billion in proceeds, with half of the proceeds directed toward debt elimination, while the dividend remains a priority as well. In a recent investor presentation, Brightstar management used the word "protect" when discussing the dividend yield and the phrase "consistent to growing" when discussing the payout and share repurchases.

From 2025 through 2028, the company expects to generate $7.1 billion in cash, of which $1.7 billion will go toward shareholder rewards. Brightstar's yearly dividend obligation will hover around $160 million, but by executing significant buybacks (reducing its shares outstanding tally), the payout can grow. That potential growth has a solid foundation in Brightstar's forecast of $400 million in annual free cash flow (FCF) through 2028.

Brightstar offers recession protection

Some stocks are often viewed as recession-resistant ideas. The consumer staples sector comes to mind, but Brightstar Lottery could offer investors some protection if the economy goes haywire in 2026.

Remember that $320 the average American spent on lotto tickets in 2023? That was only $11 higher than the average spend in 2022, while a bear market in stocks unfolded and as inflation spiked, resulting in a wave of interest rate hikes. Believe it or not, that's not a one-off example. Studies confirm that, despite various economic calamities, including the global financial crisis, state lottery sales have modestly risen.

Here's to hoping a recession doesn't arrive anytime soon, but if one does, investors may not want to overlook the dividend growth and protection offered by Brightstar Lottery.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.