3 Brilliant High-Yield Stocks to Buy Now and Hold for the Long Term

High-yield stocks are a mainstay of income investing, with many dividend lovers using the cash their portfolios generate to supplement Social Security in retirement. However, you have to understand the businesses you own and how they interact with other investments and your big-picture income needs. Here's why your income search should start with Federal Realty (NYSE: FRT), Enterprise Products Partners (NYSE: EPD), and, for the right investors, Ares Capital (NASDAQ: ARCC).

Federal Realty has an unmatched dividend record

As far as real estate investment trusts (REITs) go, Federal Realty is relatively small, with a portfolio of around 100 properties. That said, its strip mall and mixed-use assets are incredibly well located, with higher average incomes and population densities around them than other peers. This is a quality-over-quantity story, and Federal Realty invests heavily in developing and redeveloping its properties to ensure they remain in high demand.

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The most notable fact about Federal Realty, however, is that it is the only REIT to have achieved Dividend King status, with 58 consecutive annual dividend increases. Now add in a well above market 4.1% dividend yield, and you get the makings of a brilliant buy-and-hold high-yield dividend stock that even the most conservative investors will find attractive.

Enterprise Products Partners avoids commodity risk

Enterprise is one of the largest midstream energy businesses in North America. It owns a vast portfolio of energy infrastructure, including pipelines, storage facilities, transportation assets, and processing facilities. It is a vital partner to energy companies as oil and natural gas are moved around the world. However, the key to the income story is that Enterprise charges fees for the use of its assets; the price of the commodities it is moving isn't all that important to its cash flows. Avoiding commodity risk has allowed Enterprise to increase its distribution annually for 27 consecutive years, which is basically as long as the master limited partnership (MLP) has been publicly traded.

That's not the only reason to be fond of Enterprise as an income investment. The MLP's distributable cash flow covers its distribution by a very comfortable 1.7x. And it has an investment-grade-rated balance sheet. There is a huge amount of room for adversity before a distribution cut would be on the table. And with a 5.7% yield, you are getting paid very well to own this energy stock.

Ares Capital is an acquired taste

Ares Capital is one of the largest business development companies (BDCs). It will not be a good fit for every dividend investor. As a business, it provides high-interest rate loans to smaller companies, which is an inherently risky endeavor. It is normal for its customers to have trouble covering their interest costs during recessions. And because of that, the dividend has a history of volatility. This is pretty normal stuff for a BDC.

That said, BDCs like Ares Capital are designed to pay large dividends. So investors can expect this stock to generate a material income stream over time, even if the payments will rise and fall along the way. If you have enough dividend income from other investments to cover your basic spending needs, Ares Capital can be looked at as icing on the cake. It's pretty impressive icing, too, given the current yield of 10.5%. Just go in knowing that the dividend will vary over time, which will probably only be a good fit for a select group of dividend lovers.

Three high-yield choices to ponder

Federal Realty, Enterprise, and Ares Capital cover a fairly broad spectrum of dividend opportunities. They won't all be brilliant options for every investor. However, for the right person, they could be just what you are looking for in a market environment where the S&P 500 index (SNPINDEX: ^GSPC) yields a shockingly low 1.1%.

Reuben Gregg Brewer has positions in Federal Realty Investment Trust. The Motley Fool has positions in and recommends Ares Capital. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.