Current dividend yields are generally low. For instance, the S&P 500’s yield sits around 1.2%, close to its historical lows. However, a few stocks stand out with more attractive yields, and they could be appealing for investors looking for income.
ares capital
ares capital (ARCC 2.62%) is noteworthy with a strong current yield of 10.7%. This Business Development Company has shown a reliable dividend history, maintaining or increasing distributions for over 16 years. It’s quite remarkable, especially since some BDCs have faced challenges in sustaining dividends.
A key factor in Ares’ performance is its scale; it’s the largest publicly traded BDC, boasting a $29.5 billion portfolio across some 600 companies. The firm mainly provides direct loans to private medium-sized enterprises, focusing on senior secured loans, and has a strong repayment priority in case of bankruptcy. Solid underwriting practices have also minimized loan losses over time.
Ares Capital has more profits than it pays out in dividends, which provides a buffer of undistributed earnings. This robust financial foundation is complemented by good liquidity that enables further growth in its loan portfolio. With the stock currently more than 20% down from its peak, it might be an advantageous moment for investors seeking high-yield BDC opportunities.
energy transfer
energy transfer (ET +1.18%) showcases a dividend yield of 6.9%. This Master Limited Partnership has consistently raised its dividend each quarter since 2021 and has a target increase of 3% to 5% annually.
MLPs generally enjoy stable cash flows, with a significant majority of their revenue stemming from fee-based sources—about 90%. In fact, Energy Transfer generated enough cash in the previous year to cover its high-yield distribution by 1.8 times, which has facilitated reinvestment into its projects.
This year, Energy Transfer plans to allocate at least $5 billion toward growth initiatives, with plans extending to 2030. The combination of rising oil prices and continuous reinvestment makes this MLP an attractive investment for passive income right now.
starwood property trust
starwood property trust (STWD 2.29%) is also impressive, offering an 11% yield. This Real Estate Investment Trust has maintained consistent dividends for over a decade.
The company’s income stability can be attributed to its diversification. It has evolved from strictly investing in residential mortgages to encompassing direct real estate investments and various types of loans. A significant acquisition last year was the net leasing platform Fundamental Income Properties for $2.2 billion, which adds a portfolio of properties secured by long-term leases, providing a stable income stream.
Starwood anticipates that its investments, including Fundamental Income, will boost returns and reinforce its dividend-paying capacity. Given that the stock price is currently over 15% down from its peak, this might be an opportune time for investors focused on income to consider purchasing shares in Starwood.
high-return investments
In summary, Ares Capital, Energy Transfer, and Starwood Property Trust present compelling high-yield investment opportunities. With their proven track records of stable or increasing dividends, they definitely seem like worthwhile income stocks to consider at present.
