Many dividend stocks offer a pedestrian yield today. Due to a surging stock market and a deemphasis on paying dividends over the years, the S&P 500‘s yield is currently near its all-time low at around 1.1%.
However, many stocks offer even higher yields. Here are three under-the-radar dividend stocks with monster yields of up to 10.7%.
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Ares Capital (NASDAQ: ARCC) currently has a 9.5% dividend yield. The business development company (BDC) operates as a registered investment company. As a result, it must pay out at least 90% of its taxable income as dividends. While many BDCs have struggled to maintain their dividend payments over the years due to changes in interest rates and other factors, Ares Capital has delivered 16 years of stable-to-increasing dividends.
The BDC focuses on providing capital to middle-market companies ($100 million to $1 billion in annual revenue). It makes direct loans and equity investments, which generate interest and dividend income to support its dividend payments.
The specialty finance company has an exceptional investment track record. Its annualized net realized loss rate is around 0%, better than its peer group (-1.1%) and the banking sector (-0.6%). Areas has a well-diversified portfolio (587 portfolio companies) composed primarily of senior secured loans. It also has an excellent financial profile, enabling it to grow its portfolio of income-generating investments. That should support continued dividend stability and growth.
Starwood Property Trust (NYSE: STWD) leads this group with a 10.7% dividend yield. The real estate investment trust (REIT) has a similar dividend payout requirement to a BDC, at 90% of its taxable income. While many other REITs have struggled to maintain their dividends (especially mortgage REITs like Starwood), it has never cut its dividend since its 2009 IPO. It has…
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