The higher the yield, the more skeptical you should be. That's usually a pretty good maxim to follow. Stocks with especially high dividend yields often have underlying issues that you need to check out before buying.
However, as is the case with many maxims, this one isn't always applicable. There are exceptions. Here are three ultra-high-yield dividend stocks you can buy in June without any hesitation.
1. Ares Capital
Ares Capital (ARCC 0.35%) is a business development company (BDC) that provides financing to middle-market businesses. It offers a sky-high dividend yield of nearly 10.2%.
This juicy yield might seem too good to be true. Is there a catch? Nope.
The company is required to pay at least 90% of its taxable income to shareholders in the form of dividends to be exempt from paying federal taxes. That's because BDCs operate under special tax laws in a similar manner as real estate investment trusts (REITs).
Investors should be comforted by Ares Capital's track record, also. The company boasts more than 13 years of stable to increasing quarterly dividends. The stock's total return has trounced the S&P 500 since Ares Capital's initial public offering in 2004. And it ranks No. 1 among all BDCs with market caps of at least $700 million, based on 10-year annualized total returns.
Ares Capital's prospects look great, as well. CEO Kipp deVeer noted in the company's first-quarter earnings press release that the "tighter credit conditions" in the market right now should make Ares Capital's financing solutions more attractive to borrowers.
2. Enterprise Products Partners
Enterprise Products Partners (EPD 0.33%) is a midstream energy company with assets including more than 50,000 miles of pipeline. The company calls its dividend a distribution because Enterprise is a limited partnership (LP). And its distribution is highly attractive with a yield of over 7.7%.
Even better, Enterprise Products Partners has increased its distribution for 24 consecutive years. During that period, the company grew its distribution by a compound annual growth rate of close to 7%.
Enterprise's financial position is strong. The company's earnings and adjusted free cash flow continue to increase. It has a solid credit rating that allows the company to easily access capital for expansion. The midstream leader also has a manageable debt level of 3x adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Should investors worry that the transition from fossil fuels to renewable energy sources will hurt the stock? Not anytime soon. The increasing global population is likely to drive higher demand for fossil fuels -- especially for natural gas and natural gas liquids -- for years to come.
3. Verizon Communications
Verizon Communications (VZ 0.24%) is no doubt the most familiar name among these three stocks. The telecommunications giant provides wireless services to millions of customers. It also offers an ultra-high dividend yield of 7.5%.
Many investors have come to view Verizon as a reliable source of income. The company has increased its dividend for 16 consecutive years.
Some, though, could be concerned that Verizon's dividend could be in trouble. In the first quarter of 2023, the telecom provider's free cash flow wasn't enough to cover its dividend payments. However, with capital expenditures falling markedly over the next few quarters, this shouldn't be an issue going forward.
Verizon might not deliver impressive share-price appreciation in the near term. The company faces significant customer churn in the highly competitive wireless market. But income investors should have no reason to hesitate in buying the stock with Verizon's attractive and growing dividend.
