My 3 Favorite Ultra-High-Yield Dividend Stocks to Buy Right Now

Some investors dislike dividend stocks. They view them as inferior to the stocks of companies that channel their profits into fueling more growth.

Not me. Sure, I own plenty of growth stocks that don’t offer dividends. However, my portfolio also includes many stocks with dividends. I also like other stocks with juicy yields that I don’t own.

Some of these stocks especially stand out to me. Here are my three favorite ultra-high-yield dividend stocks to buy right now.

1. Ares Capital

I have followed Ares Capital (ARCC 0.10%) for a while but only recently bought the stock. Its dividend yield of close to 9.8% was admittedly a big part of the attraction. However, it wasn’t the only thing that I liked about Ares Capital.

Ares Capital ranks as the largest publicly traded business development company (BDC). The overall environment for BDCs is quite good these days. Access to credit is right for middle-market companies. As a result, they’re turning increasingly to BDCs to raise capital.

There’s a real risk that BDCs’ clients can default on their payments. But Ares Capital has an impressive track record on this front. Its average net-realized gains are much better than its BDC peers (and most banks, for that matter). This is a result of the company’s solid risk-management process.

Speaking of impressive track records, Ares Capital generated total returns since its IPO in 2004 that have absolutely shellacked the S&P 500‘s performance. This wasn’t due to a good year here and there, either. I expect that Ares Capital will continue to deliver market-beating total returns over the long term.

2. Energy Transfer LP

I don’t own shares of Energy Transfer LP (ET 2.58%) — at least not yet. I regard this midstream energy stock very highly, though, for several reasons.

Energy Transfer’s distribution yield of 9.5% is certainly an important factor. The company continues to generate plenty of cash flow to keep those distributions flowing. Its target is also to increase the distribution by 3% to 5% per year. That’s not shabby, especially considering how attractive the yield already is.

In a market where many stocks sport nosebleed valuations, Energy Transfer looks dirt cheap. Its shares trade at a forward-earnings multiple of only 7.3 times. I think the company’s pipelines and other midstream assets will enjoy solid demand for years to come even with the transition to renewable energy sources.

I’m not the only believer in Energy Transfer, either. Wall Street’s consensus 12-month price target for the stock reflects an upside potential of close to 27%. All 16 analysts surveyed by LSEG in October rated Energy Transfer as a buy or a strong buy.

3. Enterprise Products Partners

Pretty much everything I just said about Energy Transfer also applies to Enterprise Products Partners (EPD 1.08%). And it’s a stock that I do already own.

Like Energy Transfer, Enterprise Products Partners operates pipelines and other midstream assets. It’s also attractively valued, with shares trading at 9.9 times expected earnings. Enterprise offers an ultra-high distribution yield of 7.7% as well.

One differentiating factor for Enterprise Products Partners, however, is its distribution track record. The company has increased its distribution for a remarkable 25 consecutive years. During that period, its distribution grew by a compound annual growth rate of 7%.

I also really like Enterprise’s track record on another front. The midstream energy leader has generated a double-digit return on invested capital (ROIC) every year since 2005. That’s especially impressive considering this period included the financial crisis that precipitated the Great Recession, the oil price collapse several years ago, and the COVID-19 pandemic.

Keith Speights has positions in Ares Capital and Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

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