3 Financial Stocks to Buy That Pay You 10% to 17% a Year in Dividends

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.

Image source: Getty Images.

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.

Ladder Capital aims to grow its earnings in the future by shifting more of its portfolio from bonds to directly originated loans. That would help support additional dividend growth. The company also has a strong balance sheet (it's the only investment-grade commercial mortgage REIT), which gives it additional flexibility to make new income-generating loan investments.

AGNC Investment

AGNC is also a mortgage REIT. It focuses on the residential mortgage market by investing in Agency mortgage-backed securities (MBS), pools of residential mortgages guaranteed against credit losses by government agencies like Fannie Mae. That makes them very low-risk fixed-income investments. It invests in Agency MBS on a leveraged basis, which increases returns and risks.

The REIT's management team noted on the third-quarter conference call that the company's existing portfolio is generating roughly a 20% return on equity (ROE). Meanwhile, new investments can earn about 19%. The company noted that this level of return currently aligns with its cost of capital, which includes its monthly dividend payments.

AGNC Investment has maintained its current monthly dividend since a pandemic-driven reset in 2020. That was one of many dividend cuts it has made over the years. There's always a possibility of another dividend cut if AGNC's returns fall below its costs, a risk investors need to monitor closely.

Cashing in on interest income

Ares Capital, Ladder Capital, and AGNC Investment all make money by investing in interest-paying loans. That provides them with the cash flow to cover their high-yielding dividends. While they have higher risk profiles compared to many other dividend stocks, they're enticing options for investors seeking a meaningful income boost.

Matt DiLallo has positions in Ares Capital, Ladder Capital, and MidCap Financial Investment Corporation. The Motley Fool has positions in and recommends Ares Capital. The Motley Fool has a disclosure policy.