The Smartest Dividend Stocks to Buy With $100 Right Now

Keith Speights, The Motley Fool

Sun, Jan 19, 2025, 2:51 AM 4 min read

1. Ares Capital

You can scoop up a share of Ares Capital (NASDAQ: ARCC) for roughly $23 at its current price. I think doing so might be one of the best investments you can make, especially if you're looking for income.

Ares Capital's forward dividend yield stands at 8.4%. Why is the yield so high? Ares Capital is a business development company (BDC). To be exempt from federal income taxes, BDCs must return at least 90% of their earnings to shareholders as dividends. And this one generates a lot of earnings for its shareholders.

A key reason is the nature of the company's business. The demand for direct lending offered by BDCs is rising due to several factors, including the speed of closing deals, and reliable access to capital during volatile periods. The total addressable market for direct lending is around $3 trillion for the traditional middle market of U.S. companies with annual revenue between $100 million and $1 billion. It jumps to $5.4 trillion if companies with annual revenue of over $1 billion are included.

Also, Ares Capital stands head and shoulders above its peers. It's the largest publicly traded BDC, and has deep relationships in the market. It also has delivered greater dividend-per-share growth and total returns over the last 10 years than its top rivals.

2. Enterprise Products Partners

Another $34 or so will buy you a share of Enterprise Products Partners (NYSE: EPD). Technically, you'll get a unit of the midstream energy leader rather than a share, because it's a limited partnership (LP). Investing in LPs comes with some tax hassles, but I think Enterprise Products Partners is worth the extra work.

Enterprise's forward distribution yield was recently over 6.35%. Want even better news? The LP has increased its distribution for 26 consecutive years.

I like that Enterprise Products Partners' business holds up well during recessions and turbulent times. Inflation doesn't impact it very much because roughly 90% of its long-term contracts feature price escalation provisions. Enterprise's cash flow doesn't ebb and flow with oil and gas price fluctuations, either; it charges the same amount for using its pipelines regardless of commodity prices.

Those aren't the only reasons why Enterprise is a smart investment right now. Its valuation is attractive, with a forward earnings multiple of 11.6. I also think the second Trump administration will implement favorable policies for midstream companies like Enterprise.

3. Pfizer

After investing in Ares Capital and Enterprise Products Partners, you should have in the ballpark of $43 left over from your initial $100. That's more than enough to buy one share of Pfizer (NYSE: PFE), which currently trades below $27 per share.

Pfizer's current forward dividend yield of 6.5% is near its highest level in 15 years. The drugmaker's dividend appears to be safe, too: Management consistently places maintaining and growing the dividend as the company's top capital allocation priority.

Granted, some might wonder whether buying Pfizer now is such a smart idea. Several of the company's drugs will lose patent protection over the next few years. Pfizer also estimates a negative impact of around $1 billion on its revenue this year from the Inflation Reduction Act.

I like Pfizer's prospects over the second half of the decade, though. It has multiple newer products driving growth and a promising late-stage pipeline. With shares trading below 9 times forward earnings, the stock is also dirt cheap.

Should you invest $1,000 in Ares Capital right now?

Before you buy stock in Ares Capital, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Ares Capital wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $843,960!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of January 13, 2025

Keith Speights has positions in Ares Capital, Enterprise Products Partners, and Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

The Smartest Dividend Stocks to Buy With $100 Right Now was originally published by The Motley Fool

Terms and Privacy Policy

Your Privacy Choices

Utah Privacy Notice