The dividend yield on the S&P 500 is currently near its all-time low at around 1.2%. However, many stocks offer much higher yields, including several with dividend yields in the double digits.
Here's a closer look at three stocks with monster dividend yields.
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AGNC Investment
AGNC Investment (AGNC 1.59%) currently yields 13.6%, more than 10 times higher than the S&P 500. The real estate investment trust (REIT) has a very straightforward investment strategy. It buys residential mortgage-backed securities (MBS) that are guaranteed against credit losses by government agencies, such as Freddie Mac. These pools of residential mortgages generate very low-risk, fixed-income returns for the REIT. AGNC increases its return potential (and risk profile) by investing in MBS on a leveraged basis primarily through repurchase agreements.
This strategy can be very lucrative. AGNC is currently earning a return on equity in the mid-to-high teens. That aligns with its cost of capital (dividend payments and operating costs). As long as these metrics remain in alignment, AGNC Investment can maintain its monthly dividend. The mortgage REIT has paid the same rate since early 2020.
NASDAQ: AGNC
Key Data Points
However, if market conditions deteriorate significantly in the future and cause its returns to fall short of its costs, the REIT might need to reset its dividend. It has had to do that several times over the years, including in 2020.
Delek Logistics Partners
Delek Logistics Partners (DKL +0.24%) currently yields 10.1%. The master limited partnership (MLP), which sends investors a Schedule K-1 Federal Tax Form each year, owns a portfolio of energy midstream assets, including pipelines, processing plants, and storage terminals. These assets generate predictable cash flow backed by long-term contracts.
NYSE: DKL
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The MLP expects to generate enough cash to cover its monster payout by 1.3 times this year. That gives it a decent cushion while allowing it to retain some money to invest in expanding its operations. The company recently completed its Libby 2 gas processing plant and has expanded its water infrastructure through the acquisitions of Gravity and H2O Midstream.
Delek Logistics' growth investments have enabled it to steadily increase its distribution. The MLP recently extended its streak to 51 consecutive quarterly raises. It has the financial flexibility to continue growing its operations and payout in the future.
Ares Capital Corporation
Ares Capital Corporation (ARCC 1.05%) currently has a 9.6% dividend yield. The business development company (BDC) makes debt and equity investments in private companies. It has a diversified portfolio with investments in nearly 600 companies, comprising primarily secured loans (71% of its assets). The company has an exceptional investment track record, with a cumulative net realized loss of 0% since its inception.
NASDAQ: ARCC
Key Data Points
These investments generate interest and dividend income, which Ares distributes to investors through its quarterly dividend payments. The company has paid its current dividend rate since 2022. It has paid a stable or higher regular quarterly dividend rate for more than 16 straight years. The BDC has also periodically paid additional supplemental dividends from its excess income.
Ares Capital routinely makes new investments. It has deep relationships with banks and institutional capital providers, enabling it to routinely raise additional funding for new loans. It raised over $1 billion in fresh capital in the third quarter, providing it with ample dry powder to make new investments to support its dividend payments. It made $3.9 billion of new investment commitments during the third quarter across 35 new and 45 existing portfolio companies. The company also exited $2.6 billion of investments, giving it additional capital to invest in new opportunities.
Monster income stocks
AGNC Investment, Delek Midstream Partners, and Ares Capital currently offer big-time yields. These companies also have solid track records of maintaining (and in some cases increasing) their hefty payouts. While they are higher-risk investments, they could provide risk-tolerant investors with lots of income in the coming years.
