Warren Buffett doesn't chase momentum. And he doesn't chase dividend yields. You can count on one hand the number of stocks in his Berkshire Hathaway (BRK.A 0.77%) (BRK.B 0.72%) portfolio with dividend yields of 5% or more.
However, that's not the full story. Here are three stocks with not just high dividend yields but ultra-high yields you probably didn't know Buffett owns.
1. Golub Capital
Golub Capital (GBDC +2.29%) ranks as the juiciest dividend stock that Buffett owns. It currently offers a dividend yield of over 10%. Golub has also delivered solid gains so far in 2023 with an even better total return.
NASDAQ: GBDC
Key Data Points
You won't find Golub Capital listed among Berkshire's holdings. However, the stock is in the portfolio of Berkshire's subsidiary, New England Asset Management (NEAM). Buffett, therefore, owns a stake in Golub.
Why is Golub Capital's dividend yield so high? It's a business development company. Similar to REITs, BDCs must return at least 90% of earnings to shareholders to be exempt from federal income taxes.
2. Ares Capital
There's also another BDC in NEAM's portfolio that generates ultra-high-yield dividends for the Oracle of Omaha. Ares Capital (ARCC +1.82%) pays a dividend yield north of 9.8%. Although its yield hasn't always been so high, the company hasn't cut its core dividend in more than 13 years.
NASDAQ: ARCC
Key Data Points
Ares Capital is much larger than Golub Capital. In fact, it's the biggest publicly traded BDC around with a market cap of over $11 billion.
Since its initial public offering in 2004, Ares Capital has delivered an annualized cumulative total return that has trounced the S&P BDC Index, which tracks 39 of the biggest BDC stocks that trade on U.S. exchanges. The stock's total return has also handily beaten the S&P 500 during that period as well as over the last three years.
3. Crown Castle
NEAM's ultra-high-yield dividend stocks aren't limited to BDCs. The Berkshire Hathaway subsidiary also holds a position in cell tower owner Crown Castle (CCI 0.74%). Although Crown Castle's dividend yield of nearly 6.5% isn't as jaw-dropping as Golub Capital's and Ares Capital's, it nonetheless meets my threshold of ultra-high (which I define, by the way, as a yield that's at least four times greater than the S&P 500's yield.)
NYSE: CCI
Key Data Points
Unlike the two BDCs on the list, Crown Castle hasn't been a winner for investors so far this year. That's mainly because the company continues to feel the impact from Sprint's cancellation of cell tower leases due to its merger with T-Mobile.
Fortunately for income investors, Crown Castle's dividend hasn't been seriously threatened by the Sprint issue. CEO Jay Brown even stated in the company's third-quarter earnings call that Crown Castle is committed to holding its dividend payout steady through 2024 and expects to resume growing the dividend beyond 2025.
Which of these ultra-high-yield stocks is the best pick?
I think that all three of these stocks are worthy of consideration by income investors. However, there's one that stands out as the best pick, in my view.
It isn't Crown Castle. I do expect the company will move past the dark Sprint-shaped cloud hanging over its head. However, as its CEO indicated, that isn't going to happen overnight.
Meanwhile, the market dynamics are favorable for BDCs. Tighter credit conditions with banks are pushing more middle-market companies to BDCs to raise capital. That's good news for Golub Capital and Ares Capital.
Between the two BDCs, though, I like Ares Capital more. Why? Ares Capital has the best track record in the industry, in my opinion. Its portfolio is more diversified and focuses more on the upper end of the middle market than most BDCs. That makes Ares Capital's investments less risky. And with a fantastic dividend yield of over 9.8%, the stock doesn't have to do much of anything for investors to enjoy attractive total returns.
