The current average dividend yields are relatively low. The S&P 500’s yield is around 1.2%, which is quite near an all-time low.
Not all stocks, however, provide appealing dividends. Here are three companies with remarkable yields that those looking for income might consider investing in now.
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Ares Capital (NASDAQ:ARCC) currently boasts a yield of 10.7%. As a Business Development Company (BDC), it has maintained a stable or increasing dividend for over 16 years, which is quite impressive compared to some of its peers that have struggled with dividend consistency.
Ares’ success can largely be attributed to its scale—the company holds the title of the largest publicly traded BDC, with a $29.5 billion investment portfolio spread across about 600 companies. They primarily provide direct loans to private middle-market companies (those making between $100 million and $1 billion annually). The focus has been mostly on senior secured loans, ensuring a priority in repayment if any borrower goes bankrupt. Their rigorous underwriting process helps minimize loan losses over time.
Currently, Ares is generating more profit than it distributes in dividends, allowing for a cushion of undistributed profits. This financial positioning is robust. With its strong liquidity, Ares is set to keep expanding its loan portfolio. Notably, the company’s stock is down more than 20% from its 52-week peak, making it an auspicious moment to consider adding a high-quality, high-yield BDC to one’s portfolio.
Energy Transfer (NYSE:ET) offers a current dividend yield of 6.9%. As a Master Limited Partnership (MLP), the company has raised its dividend quarterly since late 2021, with an aim for an annual growth rate of 3% to 5%.
MLPs are known for their stable cash flows, with fee-based revenues making up around 90% of their total earnings. Last year, Energy Transfer generated enough cash to cover its high-yield distributions by 1.8 times. This financial strength has enabled significant reinvestment opportunities.
For this year, Energy Transfer plans to invest at least $5 billion in growth capital initiatives, with expansion strategies set through 2030. This investment trajectory positions MLPs well for continued dividend increases, potentially making this a standout choice for passive income right now, particularly with soaring oil prices likely enhancing returns.
Starwood Property Trust (NYSE:STWD) presents the highest yield among these options at 11%. This real estate investment trust (REIT) has a longstanding history of stable dividends, consistently paying them for over a decade.
This stability can be attributed largely to Starwood’s increasing diversification strategy. Traditionally, commercial mortgage REITs have merely invested in residential mortgages backed by commercial real estate. In recent years, Starwood has expanded its investments to directly include various properties, mortgages, and infrastructure loans. Last year, for instance, they acquired the net leasing platform Fundamental Income Properties for $2.2 billion, which includes properties under long-term net leases—averaging a 17-year term and an annual rent growth rate of about 2.2%. This diverse approach secures a stable income stream to support their dividends.
With these acquisitions, Starwood anticipates boosting returns for its shareholders while maintaining its capacity to pay dividends. Given that its stock price is currently down more than 15% from its peak, it appears to be a prime opportunity for income-focused investors to consider Starwood.
Ares Capital, Energy Transfer, and Starwood Property Trust all offer exceptional yield potential. These companies have demonstrated a solid track record of stable or growing dividends, and they are expected to maintain this trend moving forward. It seems this is a favorable moment to consider investing in high-yield income stocks.
Before investing in Ares Capital stock, consider the following:
The Motley Fool’s analyst team has spotlighted what they deem the top ten stocks worth considering right now. Interestingly, Ares Capital wasn’t part of this list, despite many promising options in it for those seeking impressive returns over the coming years.
