Ares Capital offers a high dividend yield and great growth prospects.
Enterprise Products Partners has increased its distributions for 26 consecutive years and has a highly resilient business.
Verizon remains a favorite holding of income investors, and its business is booming.
What's a five-letter word that can have a negative connotation when used as a verb but a positive one when used as a noun? The answer is "yield." An opponent who yields in a contest is the loser. However, an investor who receives a nice dividend yield is a financial winner.
Some investors, though, hold a negative view of exceptionally high yields, as they can reflect underlying business problems and share price tumbles, and could indicate that the payout itself is in jeopardy of being cut. But that's not always the case. Some stocks with unusually high yields are great picks. Here are three ultra-high-yield dividend stocks you should consider buying hand over fist in May.
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1. Ares Capital
At its current share price, Ares Capital's (NASDAQ: ARCC) dividend has a forward yield of 9.3%. The company has maintained a stable or growing payout for 15 consecutive years. Ares Capital has also delivered the highest regular dividend growth over the last 10 years of any externally managed business development company with a market cap of over $700 million.
Business development companies primarily provide capital to middle-market businesses with annual revenues between $10 million and $1 billion. That market represents an estimated $3 trillion opportunity. Offering direct lending to companies with annual revenues of over $1 billion adds another $2.4 trillion to Ares Capital's addressable market.
Ares Capital is in a great position to capture more of this market. It's the largest publicly traded business development company, its net-debt-to-equity ratio is below 1, and its balance sheet is strong. It also has deep industry relationships and ample access to credit.
Should investors be concerned that longtime CEO Kipp DeVeer is stepping down? I don't think so. DeVeer will remain on the board of directors. He's passing the baton to Kort Schnabel, who has worked with Ares Capital's parent company, Ares Management, since 2001, and who previously served as Ares Capital's co-president. Schnabel founded Ares Management's U.S. direct lending strategy in 2004.
2. Enterprise Products Partners
Limited partnerships such as Enterprise Products Partners(NYSE: EPD) refer to the money they return to investors as distributions rather than dividends. Whatever you want to call it, Enterprise's distribution has a juicy forward yield of 6.9%.
Enterprise Products Partners has increased its distribution for an impressive 26 consecutive years. The midstream energy leader has also rewarded investors through unit (the equivalent of stock for a limited partnership) buybacks.
What I like most about Enterprise is its ability to grow its distribution regardless of what's going on in the broader economy or the oil and natural gas industry. Even during the Great Recession, the multiyear oil price collapse that began in 2015, and the COVID-19 pandemic, its cash flows remained strong.
Global demand for liquid hydrocarbons is expected to increase over the next five years, with natural gas liquids (NGLs) and naphtha accounting for over 60% of the growth. The U.S. retains a competitive advantage in those markets because of its low production costs. The growing adoption of artificial intelligence (AI) technology is also driving greater demand for natural gas to fuel data centers. These factors bode well for Enterprise Products Partners' growth prospects.
3. Verizon Communications
Verizon Communications(NYSE: VZ) continues to be a favorite holding among income investors -- and for good reason. The telecommunications giant's forward dividend yield is a lofty 6.3%. Verizon has also increased its payouts for 18 straight years.
While the stock market broadly has fallen this year, Verizon's share price has risen. This outperformance stems in part from the fact that the telecom should experience only limited repercussions from the tariffs imposed by President Donald Trump. During Verizon's recent first-quarter earnings call, CEO Hans Vestberg said that "a very small portion" of the company's capital expenditures are exposed to tariffs.
Another key driver of Verizon's solid year-to-date gains, though, is that its business continues to perform well. It delivered industry-leading wireless service revenue in Q1. It's capturing a rising share of the broadband market. And its free cash flow jumped from $2.7 billion in the prior-year period to $3.6 billion in the recent quarter.
Verizon's business should soon become even stronger. The company is moving forward with its acquisition of Frontier Communications. This deal will expand Verizon's products and services for consumers and small businesses. The transaction is expected to close in the first quarter of 2026.
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Keith Speights has positions in Ares Capital, Enterprise Products Partners, and Verizon Communications. The Motley Fool recommends Enterprise Products Partners and Verizon Communications. The Motley Fool has a disclosure policy.
