Motley Fool spotlights three ultra-high-yield dividend plays

Motley Fool contributor Matt DiLallo has spotlighted three stocks with ultra-high-yielding dividends. They vary in size and operate across different sectors, but share a long track record of stable or growing payouts.

Starwood Property Trust

The dividend yield of the REIT Starwood Property Trust, which has a capitalization of $6.3 billion on the New York Stock Exchange, stands at 11%. This is the highest among the three companies, the Motley Fool stock analyst writes.

The company has paid dividends for more than 10 years, and one factor enabling this is increasing diversification, DiLallo explains. Starwood Property Trust manages a portfolio that includes mortgage loans, debt investments, and direct investments in real estate, including offices and residential properties. All are backed by long-term leases, averaging 17 years, with 2.2% rent escalations, providing a stable, growing source of income to support dividends, DiLallo writes.

Now is the best time to buy into Starwood, he believes, as its stock price has fallen more than 15% from its 52-week high.

The company’s shares have five “buy” ratings from Wall Street analysts versus two “hold” ratings. The average target price is $20.83 per share, which is 22% above the last closing price on Friday.

Ares Capital

Shares of financial company Ares Capital, with a market capitalization of $12.5 billion, have a dividend yield of 10.7%. It specializes in direct lending and equity investments in small private companies and has paid stable or growing dividends for more than 16 years, DiLallo notes. He believes one reason is its scale: Ares’ investment portfolio is valued at $29.5 billion and spans 600 companies. Thanks to strong underwriting, loan losses over the years have been minimal, according to the Motley Fool article.

Wall Street is broadly positive on the company’s outlook: its shares have 12 “buy” ratings versus two “hold” ratings. The average target price of $21.88 per share is more than 25% above the Friday close.

Energy Transfer 

Shares of energy company Energy Transfer, which has a market capitalization of about $67.6 billion, have a dividend yield of 6.9%. Supported by stable cash flow, the company has increased its payouts every quarter since the end of 2021 and aims to raise them by 3-5% annually, DiLallo writes. At the same time, he notes, Energy Transfer retains sufficient funds for reinvestment. In particular, it plans to spend at least $5 billion on growth this year, which should support further income expansion in the future.

The Motley Fool analyst believes all these factors make the stock attractive “right now,” as higher oil prices should increase earnings.

Wall Street broadly shares this view: 20 analysts recommend buying the company’s shares, while three suggest holding them. There are no “sell” ratings. The average target price of $22.13 per share implies upside of 12.5%.