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If you invest $10,000 in each of these 5 ultra-high yield dividend stocks, you could earn almost $4,000 in passive income

Stock investing and farming are similar in some ways. Farmers plant seeds hoping they will grow and produce lots of fruit. Investors essentially do the same thing.

But buying stocks can be much easier than farming, which requires a lot of hard work. And the right stocks can produce regular ‘fruit’, allowing you to sit back and watch the money roll in. What are some good stocks to buy? If you invest $10,000 in each of these five ultra-high yield dividend stocks, you could earn almost $4,000 in passive income annually.

1. Ares Capital

Ares Capital (NASDAQ: ARCC) is the largest publicly traded business development company (BDC). It focuses primarily on providing financing alternatives at the upper end of the middle market. The BDC sector has grown significantly as many banks have shunned these opportunities.

As a BDC, Ares Capital must return at least 90% of its taxable income to shareholders in the form of dividends. Since the dividend currently yields 9.5%, a $10,000 investment in the stock would generate $950 in annual passive income.

You must be able to count on this dividend income. Ares Capital continues to generate solid profits and has paid stable or increasing dividends every quarter for 14 consecutive years.

2. Energy transfer

Energy transfer (NYSE:ET) is a major midstream energy company that operates pipelines, storage facilities and more. It has grown both organically and through acquisitions, most recently completed with the acquisition of Crestwood Equity Partners in November 2023.

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The company’s distribution yield is 8.6%. If you invested $10,000 in Energy Transfer, you would bring in $860 in passive income over a year at that level.

Income investors who want to buy and hold will likely like Energy Transfer. The limited partnership (LP) expects to increase distribution by 3% to 5% annually over the long term.

3. Business product partners

Partners for business products (NYSE:EPD) is another mid-market energy leader that is a great choice for generating passive income. Like Energy Transfer, the company is organized as a limited partnership and operates pipelines, storage facilities and other midstream assets.

With Enterprise you don’t get as large a distribution as with Energy Transfer. However, the company’s yield of around 7.5% isn’t bad at all. If you invest $10,000 in the LP, you can earn about $750 in passive income annually.

However, Enterprise Products Partners boasts a more impressive distribution track record than its midstream peer. The company has grown its distribution for 25 years in a row, with a compound annual growth rate of almost 7%.

4. Innovative industrial properties

Innovative industrial properties (NYSE: IIPR) is the first – and only – Real Estate Investment Trust (REIT) to trade on the New York Stock Exchange and focus on the legal cannabis market. The real estate capital that IIP provides is critical to U.S. cannabis operators as federal regulations make it difficult to access traditional financing alternatives.

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Like BDCs, REITs must return at least 90% of their income to shareholders in the form of dividends to be exempt from federal income taxes. With IIP’s dividend yield of 7.3%, a $10,000 investment in the stock would result in $730 in passive income annually.

Despite some challenges facing the US cannabis industry, IIP has not missed a beat in paying out its dividends. Over the past five years, the company has more than quadrupled its dividend payout.

5. Verizon Communications

Verizon Communications (NYSE: VZ) is undoubtedly the most famous company on this list. It has been a leader in the telecommunications market for years. Verizon provides wireless, Internet, TV and telephone services to customers worldwide.

This stock has long been a favorite of income investors. With Verizon’s dividend yield of over 6.6%, that should still be the case. An investment of $10,000 would generate over $660 in passive income annually.

I like Verizon’s 17-year history of consecutive dividend increases. I also like that the company’s free cash flow is growing – a big plus for investors looking for reliable income.

Adding it all up

If you invest $10,000 in each of these five ultra-high yield dividend stocks, you should be able to earn just under $4,000 in passive income. There is a possibility that one or more companies could cut their dividend payments, but I don’t think this scenario is likely.

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A more serious concern is that some of these stocks could underperform, with losses more than offsetting the dividend income generated. However, I think all five stocks have the potential to increase in value over the long term.

Should You Invest $1,000 in Ares Capital Now?

Consider the following before purchasing shares in Ares Capital:

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Keith Speights has positions in Ares Capital, Enterprise Products Partners and Innovative Industrial Properties. The Motley Fool holds positions in and recommends innovative industry properties. The Motley Fool recommends Enterprise Products Partners and Verizon Communications. The Motley Fool has a disclosure policy.

By investing $10,000 in each of these 5 ultra-high yield dividend stocks, you could earn almost $4,000 in passive income. was originally published by The Motley Fool

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