My 3 Favorite Ultra-High-Yield Dividend Stocks to Buy Now

I'm not getting any younger. These days, I'm thinking more and more about retiring and the stream of passive income that will allow me to thrive instead of merely surviving.

I'm attracted to high yields like everybody else, but there are more important factors to consider. Ares Capital (NASDAQ: ARCC), W.P. Carey (NYSE: WPC), and Realty Income (NYSE: O) have been hovering at the top of my list of dividend stocks to buy because they do more than just offer a high yield.

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All three of these stocks have remarkable track records when it comes to maintaining and raising their payouts. At the moment, they offer yields that are more than triple the average yield you'd receive from the average dividend payer in the S&P 500 index. Put it together, and they're hard to ignore.

1. Ares Capital

Ares Capital is the largest business development company (BDC) with shares that trade publicly. These specialized entities fill in the private lending gap created by American banks that no longer lend directly to midsize businesses. Starved for capital, midsize businesses are willing to borrow at very attractive interest rates. The weighted average yield on Ares Capital's $27 billion portfolio was 9.8% at the end of March.

Ares Capital isn't shy about sharing its investment income with shareholders. Just about every penny earned is paid out to a quarterly dividend that offers an 8.7% yield at recent prices. The BDC has a tendency to make extra dividend payments in times of plenty rather than commit to a permanent payout increase. Investors seeking a reliable income base will be glad to know its quarterly payout has been rising, or at least stable, since 2009.

Direct lending to midsize businesses can be risky, but Ares Capital's enormous footprint in the asset management space means it has plenty of excellent borrowers to choose from. The BDC is externally managed by a subsidiary of Ares Management, a leading global alternative investment manager with around $546 billion in assets under management.

Members of Ares Capital's underwriting team have over 25 years of experience on average, and it shows. At the end of March, just 0.9% of Ares Capital's total investment portfolio was on nonaccrual status.

2. W.P. Carey

If you're willing to accept a smaller yield upfront in exchange for frequent payout increases, consider W.P. Carey. Shares of this diversified real estate investment trust (REIT) have been under pressure since it spun off its office building portfolio in 2023 and lowered its dividend accordingly.

Throughout the Great Recession, W.P. Carey managed to raise its quarterly payout. The COVID-19 pandemic pulled the rug out from under its office portfolio, but it only lowered its payout by 19.7% in 2023, plus shareholders received new shares of Net Lease Office Properties.

W.P. Carey has raised its dividend every quarter since it spun off Net Lease Office Properties. At recent prices, it offers a huge 5.7% yield that investors can reasonably expect to grow significantly in the years ahead. Its portfolio is highly diversified. It's three largest tenants combined are responsible for just 7% of total rent payments received annually.

In April, management told us to expect between $4.82 and $4.92 in adjusted funds from operations (FFO), a proxy for earnings used to evaluate REITs. That's more than enough to meet a dividend commitment currently set at an annualized $3.60 and raise it further.

3. Realty Income

Like W.P. Carey, Realty Income is a diversified REIT with steadily growing profits produced by a large portfolio of commercial property. Its cash flows grow reliably because annual rent escalators are written into long-term net leases that transfer all the variable expenses associated with building ownership to the tenant.

At recent prices, Realty Income shares offer a 5.7% yield and confidence that comes with a very long payout raising streak. The company recently raised its monthly dividend payout for the 131st time since going public in 1994.

With a 56-year operating history and 15,627 commercial properties spread throughout eight countries, Realty Income can borrow at interest rates that its smaller peers can only dream about. The company recently sold around $1.5 billion worth of euro-denominated notes at an effective rate of just 3.7%.

For many companies that own their facilities, selling their buildings to Realty Income and leasing them back is an increasingly popular financing option. With the vast majority of leaseable buildings still owned by the businesses that operate in them, investors can look forward to many more years of steady payout raises.

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Cory Renauer has positions in Ares Capital and W.P. Carey. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.