3 Monster Dividend Stocks to Buy in June (1 Yields an Eye-Popping 11.2%!)

The average dividend yield is pretty paltry these days. The S&P 500 recently hit its lowest yield on record at around 1%. That's making it harder for investors to find attractive stocks to buy for generating dividend income.

However, there are still some compelling income opportunities. Here are three dividend stocks with monster yields to buy this June.

Image source: Getty Images.

Ares Capital

Ares Capital (NASDAQ: ARCC) is a business development company (BDC). As a result, it needs to distribute 90% of its taxable net income to investors via dividends to remain in compliance with IRS regulations. That required payout ratio is why the BDC currently offers a monster 10.2% yield.

A dividend yield in the double digits is often a sign of a higher risk profile. While Ares Capital is certainly a higher-risk dividend stock, its dividend has proven to be very durable over the years. Ares has delivered a stable-to-growing dividend for more than 16 consecutive years.

Ares is currently generating more than enough income to cover its current dividend level of $0.48 per share each quarter. For example, it generated $0.47 per share of core earnings in the first quarter, along with $0.15 per share of net realized gains, bringing the combined total well above the dividend payment. Additionally, Ares estimated that it carried forward $1.38 per share of excess taxable income from last year for distribution in 2026, giving it a sizable buffer. Add in its strong financial profile, a more stable interest rate environment, and solid credit performance across its portfolio, and Ares believes the "current dividend approximates the long-run underlying earnings power of our business," stated CEO Kort Schnabel on the first-quarter conference call.

Energy Transfer

Energy Transfer (NYSE: ET) is a master limited partnership (MLP), an entity that sends a Schedule K-1 Federal tax form each year. MLPs are pass-through entities that typically distribute a meaningful percentage of their cash flow to investors each year. That's why the pipeline company currently yields 7%.

The MLP generated $2.7 billion of distributable cash flow in the first quarter, easily covering the nearly $1.2 billion it distributed to investors. Energy Transfer retained the remaining cash to reinvest in the partnership. The pipeline company currently plans to invest between $5.5 billion and $5.9 billion in organic expansion projects this year, including pipeline expansions, gas processing plants, and other midstream energy infrastructure. The company currently has projects underway that should enter commercial service through 2030.

Those expansions should give Energy Transfer the fuel to continue growing its high-yielding distribution, which it has done every year since resetting its payout level in 2020 to strengthen its financial profile. The MLP is in the strongest financial position in its history, further supporting its plan to increase its payout by 3% to 5% each year.

Starwood Property Trust

Starwood Property Trust (NYSE: STWD) is a real estate investment trust (REIT) primarily focused on commercial mortgage investments. REITs, like BDCs, must distribute at least 90% of their taxable net income to investors via dividends. That's why Starwood currently offers an 11.2% dividend yield.

The REIT's focus is on providing investors with a secure dividend. Starwood has never cut its dividend and has maintained its current quarterly rate of $0.48 per share for over a decade. While Starwood's distributable earnings were below the dividend in the first quarter ($0.39 per share), it has $3.87 per share of unrealized distributable earnings from property gains to support the dividend.

Starwood has also steadily diversified its business over the years to enhance the sustainability of its dividend. In addition to investing in commercial mortgages, Starwood also invests in residential mortgages and infrastructure-backed loans and owns a growing real estate portfolio. Last year, Starwood bought Fundamental Income Properties for $2.2 billion, adding a net lease real estate investment platform to its portfolio. Net-leased real estate provides durable, growing rental income, which will help support Starwood's dividend (Fundamental's portfolio had a 17-year weighted-average lease term and 2.2% average annual rent escalations).

Boost your dividend income in June

Ares Capital, Energy Transfer, and Starwood Property all currently offer monster dividend yields. They have done a solid job of sustaining their dividends over the years, which should continue. That makes them enticing dividends stocks for more risk-tolerant investors to buy this June to bolster their dividend income.

Matt DiLallo has positions in Ares Capital, Energy Transfer, and Starwood Property Trust. The Motley Fool has positions in and recommends Ares Capital and Starwood Property Trust. The Motley Fool has a disclosure policy.