The past couple of years have been great for the overall stock market, but there is a downside. When stock prices go up, dividend yields decline. Now, income-seeking investors need to look extra hard for reliable stocks that offer satisfying yields.

The search for reliable high-yield dividend stocks is harder than it was a couple of years ago, but it's not impossible. At recent prices, Realty Income(NYSE: O), PennantPark Floating Rate Capital(NYSE: PFLT), and Ares Capital(NASDAQ: ARCC) offer a yield of 8.5% on average. At this level, just $11,750 spread evenly among them is enough to secure $1,000 worth of annual dividend payments.

Best of all, the payments these stocks send investors keep rising. Here's why they could make great additions to just about any income-seeking investor's portfolio.

1. Realty Income

With 1,552 tenants renting 15,457 commercial buildings, Realty Income is one of the largest real estate investment trusts (REITs) you can invest in. At recent prices, it offers a 5.9% yield.

Realty Income offers a lower yield than the other stocks on this list, but perhaps not for long. It's been raising its payout every quarter since it began trading publicly in 1994.

When you're already recording around $4.9 billion in annual base rent, acquiring enough new properties to move your needle forward isn't easy. With 55 years of experience, though, investors can count on Realty Income to take the right steps that ensure steady dividend payout growth for the long run. In November, the company said it would complete about $2.9 billion in net acquisitions in 2024.

When reporting third-quarter results in November, Realty Income told investors to expect a 4.8% rise in adjusted funds from operations, a proxy for earnings, in 2024. A large addressable market suggests this REIT can find adequate new sources of growth to continue its decades-long dividend-raising streak. Realty Income and its peers have control of less than 0.1% of their addressable market in Europe.

2. PennantPark Floating Rate Capital

Direct lending between traditional banks and midsized American businesses hardly exists anymore. Instead, business development companies (BDCs) such as PennantPark Floating Rate Capital are raking in profits by originating relatively high-interest loans to capital-starved middle-market companies.

At recent prices, PennantPark Floating Rate Capital offers an eye-popping 11.2% yield. Like Realty Income, it makes dividend payments monthly. It doesn't raise its payout nearly as regularly, but it has raised or maintained its dividend since it started paying one in 2011.

Story Continues

This BDC stock has been under pressure because, as its name implies, nearly all the loans it originates collect interest at variable rates that declined significantly in 2024. It also focuses on smaller businesses that earn between $10 million and $50 million annually before interest, taxes, depreciation, and amortization (EBITDA). While lending to businesses of this size can be lucrative, they can be riskier than upper middle-market companies with annual EBITDA over $50 million.

The Federal Reserve lowered interest rates by a full percentage point in 2024, but it's hardly a reason to avoid this reliable dividend payer. During the quarter that ended last September, the BDC invested $446 million across 60 companies with a yield of 11% on average.

This BDC reported net investment income in the third quarter was sufficient to meet its dividend payout. With heaps of new loans on the books, keeping up with dividend payments at their present level should be a breeze.

3. Ares Capital

Ares Capital is an enormous BDC with a $25.9 billion investment portfolio that is more than 12 times larger than PennantPark Floating Rate Capital's. The giant BDC doesn't raise its dividend payout rapidly, or steadily, but it has increased by 37% since 2011.

At recent prices, shares of Ares Capital offer an 8.5% dividend yield that could rise in the near term. Net investment income that reached $2.30 per share over the past 12 months is more than it needs to meet an annual dividend commitment set at $1.92 per share.

Since banks are increasingly hesitant to lend to midsized companies, BDCs like Ares Capital can originate secured loans at interest rates you might find surprising. The average yield on the income-generating securities in its portfolio was a whopping 11.7% during the third quarter.

With heaps of experience, Ares Capital rarely lends to businesses that can't repay their debts. Just 1.3% of the BDC's portfolio at cost was on nonaccrual status at the end of last September. Adding some shares of this BDC to a diverse portfolio looks like a reliable way to pump up your passive income stream.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

Nvidia:if you invested $1,000 when we doubled down in 2009,you’d have $346,349!* Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,229!* Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $454,283!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of January 13, 2025

Cory Renauer has positions in Ares Capital. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.

Want an Extra $1,000 of Dividend Income in 2025? Invest $11,750 in These 3 Ultra-High-Yield Stocks was originally published by The Motley Fool

View Comments