The dividend yield on the S&P 500 is near its all-time low at around 1.1% these days. Rising stock prices and a reduced focus on paying dividends by many companies are two factors driving the market's paltry yield.
However, there are some outliers in today's low-yielding environment. Here are three monster dividend stocks with yields of up to 12.5%.
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AGNC Investment
AGNC Investment (AGNC 2.62%) leads the way with a 12.5% dividend yield. The mortgage REIT pays its dividend monthly, which adds to its appeal as a source of passive income. The company has maintained its current rate for over five years following a pandemic-driven reduction in 2020.
The REIT invests in Agency MBS (pools of residential mortgages guaranteed against credit losses by government agencies like Fannie Mae). The Agency MBS market is massive ($9.2 trillion) and a pillar of the U.S. financial system. The REIT invests in these fixed-income assets on a leveraged basis, which boosts its returns.
NASDAQ: AGNC
Key Data Points
As long as AGNC's investment returns exceed its cost of capital (operating costs and dividend payments), it can continue paying its lucrative monthly dividend. That seems likely for the time being, given the current strong Agency MBS market conditions. With interest rates falling and the economy healthy, AGNC expects to generate favorable returns, enabling it to continue paying its ultra-high-yielding monthly dividend.
Ares Capital
Ares Capital (ARCC 2.27%) currently has a 10% dividend yield. The business development company (BDC) makes direct loans to middle market companies ($100 million to $1 billion in annual revenue). These loans generate interest income to support its lucrative dividend.
NASDAQ: ARCC
Key Data Points
The BDC currently boasts healthy profit levels, with core earnings exceeding its dividend payments. As a result, it has built up a comfortable cushion to maintain its current dividend level even if its earnings dip. Ares Capital has either maintained or increased its dividend payment for over 16 consecutive years.
Ares Capital has a strong financial profile, which enables it to grow its industry-leading loan portfolio. It originated a record level of new investments last year and has a strong pipeline of opportunities for 2026. The BDC's growing loan portfolio should continue supporting its big-time dividend.
Western Midstream Partners
Western Midstream Partners (WES +0.20%) currently yields 8.9%. The master limited partnership (MLP), which sends investors a Schedule K-1 Federal tax form each year, operates a portfolio of energy midstream assets such as pipelines and processing plants. The bulk of its assets generate stable cash flow backed by long-term, fixed-fee contracts.
NYSE: WES
Key Data Points
The MLP currently generates enough cash flow to cover its lucrative distributions and capital expenditures, with room to spare. That enables it to maintain a strong balance sheet. Western Midstream uses its financial capacity to make acquisitions. For example, it bought Aris Water Solutions for $2 billion last year.
Western Midstream also invests capital to expand its operations organically. It's currently building the North Loving II gas processing plant and Pathfinder Pipeline, which should both enter commercial service next year. Western Midstream's growth investments should support distribution increases. It aims to raise its payment at a low-to-mid single-digit rate, with additional growth potential from acquisitions and major growth project completions. Western Midstream has grown its payout by an eye-popping 187% since cutting the distribution level by 50% in 2020 to strengthen its balance sheet during the pandemic.
Monster income streams
AGNC Investment, Ares Capital, and Western Midstream Partners currently offer yields that are several times higher than the S&P 500. All three companies have maintained or increased their payments over the last five years. They should be able to sustain their lucrative dividends in the future as long as there isn't a severe disruption in the financial markets. While a potential future cut makes them riskier, their currently ultra-high yields make them appealing options for more risk-tolerant income-seeking investors.
