2 Ultra-High-Yield Dividend Stocks to Buy Now for a Lifetime of Passive Income

Back in 2022 and 2023, rising interest rates drove many income-oriented investors to rotate from dividend stocks toward risk-free CDs and T-bills to earn higher yields. However, those rates retreated in 2024 and 2025 as the Federal Reserve cut its benchmark rate five times.

As that rate declines, more of those investors will likely pivot back toward high-yielding blue chip dividend stocks. Among those stocks, business development companies (BDCs) pay some of the highest and most reliable yields. BDCs provide financing to smaller middle-market companies, which often struggle to secure loans from traditional banks because they're higher-risk clients. In exchange for taking on that risk, BDCs charge higher interest fees than traditional banks.

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BDCs also pay out at least 90% of their taxable income as dividends to avoid paying corporate income tax. That makes them more attractive income plays than traditional bank stocks. I believe two of those BDCs -- Ares Capital (NASDAQ: ARCC) and Main Street Capital (NYSE: MAIN) -- could generate a lifetime of passive income for their long-term investors.

The differences between Ares and Main Street

Ares' $28.7 billion portfolio is spread across 587 portfolio companies. Main Street has made 175 cumulative investments so far and manages $8.4 billion in assets.

Ares targets companies that generate $10 million to $250 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) each year. Main Street focuses on smaller companies with an annual EBITDA of $3 million to $20 million.

Ares usually invests $30 million to $500 million in each company, while Main Street makes smaller initial investments of $5 million to $125 million. Ares mainly provides rigid direct loans with fewer equity investments for its large clients, while Main Street provides a more flexible mix of debt, equity, and partnering solutions for its smaller clients.

Both companies provide floating rate loans that are pinned to the Fed's benchmark rates. To keep growing, they need those rates to stay in a Goldilocks zone. Higher rates can boost their net interest income, but they would also generate headwinds for their portfolio companies and make its own dividend-paying shares less attractive than CDs and T-bills. Lower rates would ease the pressure on their portfolio companies and draw more investors to their stocks, but they would also reduce their net interest income.

Why are Ares and Main Street reliable income stocks?

Ares and Main Street pay high forward dividend yields of 9.5% and 7.5%, respectively. Ares pays quarterly dividends, while Main Street pays out monthly dividends.

Those high yields might seem like red flags as rising rates squeeze their profits, but they can easily cover their current dividends. Ares' core earnings per share (EPS) dipped 2% to $2.33 per share in 2024 as declining rates squeezed its margins, but that was more than enough to cover its annual dividend of $1.92 per share. Main Street's distributable net income per share (comparable to Ares' core EPS) dipped 1% to $4.32 per share in 2024 as it faced similar headwinds, but that still covered its $4.11 in annual dividends.

So while Ares and Main Street might both face near-term headwinds as interest rates decline, they should continue to pay out their high dividends until those rates gradually stabilize. Ares doesn't raise its dividends every year, but Main Street has raised its payout annually during the past four years.

Both stocks still look cheap even as the S&P 500 hovers near record highs. At $20, Ares trades at just 10 times last year's core EPS. At $57, Main Street trades at 13 times its trailing distributable net income per share. Those low valuations and high yields should limit their downside potential, even if the broader market finally cools off. So if you're looking for a safe place to park your cash and earn a lifetime of passive income, these two BDCs deserve a much closer look.

Leo Sun has positions in Main Street Capital. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.