You can easily find high-quality dividend stocks to buy. However, the task becomes more difficult when you narrow your search down to only stocks that pay ultra-high dividend yields. By the way, my definition of an "ultra-high" yield is one that's at least 4x the yield of the S&P 500, which currently puts the threshold at around 5.8%.
But it's not impossible to find great stocks that clear the demanding hurdle. These are the three best ultra-high-yield dividend stocks to buy right now, in my opinion (listed by descending yield).
1. Ares Capital
Business development companies (BDCs) often pay attractive dividends. They must return at least 90% of their taxable income to shareholders in the form of dividends. I think that Ares Capital (ARCC 0.73%) ranks as the top BDC around.
Let's start with the company's juicy dividend yield of nearly 9.8%. If that's not enough to pique your interest, consider that Ares Capital has had more than 13 years of stable or increasing dividends. Over the last 10 years, its base dividend per share has grown by over 26%.
Ultra-high dividend yields are next to useless, though, if share declines offset any income you make. That's not a problem with Ares Capital. Its total returns have trounced the S&P 500 not only in recent years but also going all the way back to the BDC's initial public offering in 2004.
Ares Capital differentiates itself from other BDCs by its risk management approach. Its portfolio is more diversified than most other BDCs. The company focuses on providing financing to the upper end of the middle market. It also stays away from cyclical and less resilient industries.
2. Energy Transfer LP
Limited partnerships in the energy sector are also known for paying exceptional distributions. Energy Transfer LP (ET 0.12%) especially jumps out with its distribution yield of over 8.8%.
The company is a leader in the U.S. midstream energy market. It operates pipelines that transport crude oil, natural gas, natural gas liquids, and refined products across the country. Energy Transfer also owns hydrocarbon fractionation and storage facilities. Roughly 90% of its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is fee-based, which means commodity price fluctuations don't affect the company very much.
Energy Transfer continues to grow via acquisitions. It has already closed one major deal this year with the purchase of Lotus Midstream. The company also announced in August that it plans to buy Crestwood Equity Partners for $7.1 billion.
Despite delivering impressive gains this year, Energy Transfer's valuation remains attractive. Its units trade at a forward earnings multiple of 8x.
3. Enterprise Products Partners
Enterprise Products Partners (EPD 0.45%) is another great pick in the midstream energy market. Its distribution yield currently stands at nearly 7.3%.
What's even more impressive about Enterprise Products Partners is its distribution track record. The company has increased its distribution for 25 consecutive years. Those weren't just nominal increases, either. Enterprise's distribution has risen by a compound annual growth rate of 7%.
Enterprise Products Partners' business model is similar to Energy Transfer's. The company operates over 50,000 miles of pipelines in the U.S. that transport crude oil, natural gas, NGLs, petrochemicals, and refined products. It also runs natural gas processing plants, fractionation facilities, and storage facilities.
The midstream energy company's business is notably resilient. Enterprise has consistently delivered double-digit percentage returns on invested capital (ROIC) through the years -- even during tumultuous times such as the financial crisis of 2008-2009 and the COVID-19 pandemic chaos of 2020.
