Matt DiLallo, The Motley Fool
5 min read
The financial sector is offering some eye-popping yields these days due to the recent surge in interest rates. That has pushed down the value of many financial stocks, driving up their dividend yields. Ares Capital (NASDAQ:ARCC), AGNC Investment (NASDAQ:AGNC), and Ladder Capital (NYSE:LADR) currently offer yields between 10% and 17%. While they are certainly higher-risk, higher-yielding dividend stocks, they’re intriguing options for investors seeking to supercharge their passive income.
Here’s a closer look at these ultra-high-yielding dividend stocks.
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Ares Capital
Ares Capital is a business development company (BDC). It makes direct loans and other investments in private middle-market companies (those with up to $1 billion in annual revenue). Ares is the largest BDC, with over $29 billion invested in more than 600 portfolio companies.
The company has an exceptional track record of underwriting loans. That’s evident in its 17-year history of paying a stable-to-increasing dividend. Ares Capital’s current portfolio is very healthy, with historically low levels of non-accruing loans and problem assets. That puts its high-yielding payout on a sustainable foundation. While its core earnings per share have fallen below its dividend level in recent quarters, Ares has generated significant additional income from investment gains, providing a sizable cushion.
Ares is expanding its scale by acquiring fellow BDC MidCap Financial in a $2.6 billion transaction. The purchase will boost its portfolio to $31 billion across over 800 portfolio companies. It should also increase its earnings per share, thereby enhancing its ability to pay dividends.
Ladder Capital
Ladder Capital is a real estate investment trust (REIT) focused on commercial mortgages. It currently yields 10.8%. Its core business is originating senior secured first mortgage loans on commercial real estate. They’re typically short-term, floating-rate loans. These investments currently comprise 48% of its $6.2 billion investment portfolio. Additionally, it invests in AAA bonds backed by senior secured first mortgages (37% of its portfolio) and makes real estate equity investments (15%), primarily stable net lease real estate.
The company’s portfolio generates interest and rental income that supports its dividend payments. It has reported $1.25 per share in distributable earnings over the last 12 months, more than covering its current dividend level ($0.92 per share annually). That company has maintained its current rate since 2022 and has increased it twice since a pandemic-driven reset in 2020.
