Investing in stocks and farming are similar in some ways. Farmers plant seeds in hopes that they'll grow and produce plenty 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 "fruit" regularly that allows you to kick back and watch the money flow in. What are some good stocks to buy? Investing $10,000 in each of these five ultra-high-yield dividend stocks could make you nearly $4,000 in annual passive income.
1. Ares Capital
Ares Capital(NASDAQ: ARCC) is the largest publicly traded business development company (BDC). It focuses primarily on providing financing alternatives to the upper end of the middle market. The BDC industry has grown significantly because many banks have shied away from these opportunities.
As a BDC, Ares Capital must return at least 90% of its taxable income to shareholders in the form of dividends. With its dividend currently yielding 9.5%, investing $10,000 in the stock would generate $950 in annual passive income.
You should 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 large midstream energy company that operates pipelines, storage facilities, and more. It has grown both organically and through acquisitions, most recently closing on the buyout of Crestwood Equity Partners in November 2023.
The company's distribution yield stands at 8.6%. If you invested $10,000 in Energy Transfer, you would rake in $860 in passive income over a year at that level.
Income investors looking to buy and hold will probably like Energy Transfer. The limited partnership (LP) expects to increase its distribution by 3% to 5% annually over the long term.
3. Enterprise Products Partners
Enterprise Products Partners(NYSE: EPD) is another midstream energy leader that's a great pick for generating passive income. Like Energy Transfer, the company is organized as a limited partnership and operates pipelines, storage facilities, and other midstream assets.
You won't get quite as big of a distribution with Enterprise as you would with Energy Transfer. However, the company's yield of around 7.5% isn't shabby at all. Investing $10,000 in the LP would enable you to make roughly $750 in passive income annually.
Enterprise Products Partners boasts a more impressive distribution track record than its midstream peer, though. The company has increased its distribution for 25 consecutive years, with a compound annual growth rate of close to 7%.
4. Innovative Industrial Properties
Innovative Industrial Properties(NYSE: IIPR) is the first -- and only -- real estate investment trust (REIT) trading on the New York Stock Exchange that focuses on the legal cannabis market. The real estate capital that IIP provides is critical to U.S. cannabis operators because federal regulations make it difficult to access traditional financing alternatives.
Like BDCs, REITs must return at least 90% of their earnings to shareholders in the form of dividends to be exempt from federal income taxes. With IIP's dividend yield of 7.3%, investing $10,000 in the stock would result in $730 in passive income on an annual basis.
Despite some challenges for the U.S. cannabis industry, IIP hasn't skipped a beat in paying 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 best-known company on this list. It's been a leader in the telecommunications market for years. Verizon offers wireless, internet, TV, and phone services to customers across the world.
This stock has been a longtime favorite of income investors. With Verizon's dividend yield of more than 6.6%, it still should be. An investment of $10,000 would generate over $660 in annual passive income.
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 seeking reliable income.
Adding it all up
Investing $10,000 in each of these five ultra-high-yield dividend stocks should enable you to make just under $4,000 in passive income. There is a possibility that one or more of the companies could reduce their dividend payouts, but I don't think this scenario is likely.
A more serious concern is that some of these stocks could underperform, with the losses more than offsetting any dividend income generated. However, I think that all five stocks have the potential to appreciate over the long term.
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Keith Speights has positions in Ares Capital, Enterprise Products Partners, and Innovative Industrial Properties. The Motley Fool has positions in and recommends Innovative Industrial Properties. The Motley Fool recommends Enterprise Products Partners and Verizon Communications. The Motley Fool has a disclosure policy.
