Outliers. You find them in every category. They're the exceptions -- the ones that buck the norm and stand out from the crowd.
When it comes to dividend stocks, the outliers are those that offer unusually high yields. In many cases, such outlier stocks aren't great picks for investors. However, some of them are -- including these three ultra-high-yield dividend stocks that investors should buy in April.
1. Ares Capital
You won't find many stocks with a higher yield than Ares Capital (ARCC -0.77%) -- at the current share price, it tops 10.5%.
Why is Ares Capital's yield so high? It's mainly due to its structure. It's a business development company (BDC), so it must return at least 90% of its earnings to shareholders in the form of dividends every year to avoid paying federal taxes. As a result, high yields are common in the BDC world.
Ares Capital ranks as the largest publicly traded BDC. It's also one of the best managed, and maintains a much more diversified portfolio than most of its peers. While many BDCs haven't generated impressive returns, Ares Capital has delivered an average annual shareholder return of around 12% since its initial public offering in 2004.
The BDC's shares have fallen in recent weeks in connection with the turmoil in the banking industry. However, the banking crisis could actually be good news for Ares Capital if more mid-market companies turn to it to raise money. This stock could be volatile. But for aggressive investors, Ares Capital looks like a promising ultra-high-yield stock to buy.
2. Devon Energy
Devon Energy (DVN 0.98%) isn't too far behind Ares Capital in terms of yield. At its current share price, the oil company's yield stands at 10%. Devon has paid dividends for 30 consecutive years.
To be sure, Devon has reduced its payouts a couple of times in recent months. The company's dividend consists of two components -- fixed and variable. The variable payments are tied to Devon's excess free cash flow. Declining oil prices caused the company's free cash flow to fall, resulting in those variable dividend cuts.
Some experts, however, predict that oil prices will rise significantly by this summer due to Russia and possibly OPEC reducing oil production. If they're right (and I suspect they are), Devon's dividend will increase. So will its share price.
Devon isn't just returning money to shareholders through dividends. It's also actively repurchasing its shares. It's in the middle of a $2 billion share buyback program with $1.3 billion of shares already repurchased. Those buybacks act as an "invisible dividend" that shouldn't be overlooked.
3. Enterprise Products Partners
Enterprise Products Partners (EPD -0.41%) offers a juicy dividend yield of nearly 7.6%. Even better, the midstream energy company has increased its distribution for 24 consecutive years with a compound annual growth rate of around 7%.
Unlike Devon Energy, Enterprise Products Partners' cash flow doesn't depend on commodity prices. The company operates more than 50,000 miles of pipelines. It collects fees for transporting crude oil, natural gas, natural gas liquids (NGLs), and petrochemicals, and those fees don't vary based on the commodities' prices.
Demand for natural gas and NGLs, in particular, should increase in the future. Although natural gas is a fossil fuel, it's much cleaner than coal. And unlike wind and solar, it can be used to generate electricity at all times. However, Enterprise Products Partners still stands to profit from carbon reduction efforts through its focus on carbon capture and sequestration.
I look for Enterprise Products Partners to continue delivering attractive distributions and solid total returns for years to come. That's why I've recently loaded up on this ultra-high-yield dividend stock.
