These three dividend stocks offer investors a yield of more than 9.6%. Here are the products I will buy first:

Dividend stocks can be a great option for people looking to generate passive income. Companies that pay dividends tend to demonstrate commitment to shareholders and practice prudent capital management. However, not all dividend stocks are created equal.

Some companies offer consistent dividend payments from year to year, but these payments provide a modest yield of 2% or less. Others offer attractive yields that sometimes reach double-digit percentages, but tend to carry a much higher risk that the dividends will not be sustainable.

This article will focus on three dividend stocks that offer investors annual returns between 9.7% and 17.3%. they B. Riley Financial (Riley -8.09%), Blackstone Secured Loan Fund (BXSL -1.32%)and Ares Capital (ARCC -0.40%). These companies offer some of the highest-yielding dividends you can find, but investors should keep a few things in mind before buying. We’ll also tell you which companies to buy first.

1. B. Riley Financial’s high dividend yield of 17.3% places a big question mark.

B. Riley Financial provides financial services including investment banking, asset and asset management, business advisory, and asset disposition. The company has been a big beneficiary of the furious investment activity seen in 2021. Transactions such as initial public offerings (IPOs) and mergers and acquisitions (M&A) hit record highs that year, according to financial analytics firm Refinitiv. As a result, B. Riley achieved explosive growth, with sales increasing 72% and net profit increasing 118%.

B. Riley’s sales declined last year due to difficult circumstances, but recovered in the latest quarter. However, the company is still struggling to make a profit. It lost $68 million in the last 12 months.

RILY Revenue (TTM) data from YCharts

A recent report from short seller The Friendly Bear adds to the difficulties. In the report, short sellers said B. Riley “continues to mark assets at two to three times fair value” and that the company “is being incredibly misleading in its disclosures about the nature of its accounting and controls.” “He stated. “It is exercised against the companies in which we have invested.”

Investors should be critical of the companies they invest in, including reports that are overly optimistic or bearish about the company. But the Friendly Bear report added fuel to the fire at the already struggling B. Riley Financial. The stock is down 67% since the end of 2021, and its 17.3% dividend yield doesn’t look sustainable based on current earnings.

B. Riley’s dividend per share for the last 12 months was $4. Meanwhile, loss per diluted share for the same period was $2.55. There’s a reason B. Riley’s yields are high, and it would take a huge turnaround in the business to continue paying the same dividend. If that turnaround doesn’t happen, the dividend will likely be cut.

2. Blackstone Secured Lending Fund invests in underprivileged companies and boasts a dividend yield of 11.2%.

Blackstone Secured Lending Fund is a business development company (BDC) that invests in private corporate debt to generate returns for dividend-focused investors. BDCs invest in companies primarily through loans, but they also invest in equity. These companies receive similar tax treatment as real estate investment trusts (REITs), which require them to pay 90% of all taxable income to shareholders through dividends or other distributions.

BDCs like the Blackstone Secured Lending Fund invest in middle-market companies that banks have neglected to invest in in recent decades. Increasing regulations and capital requirements have led banks to withdraw funding to companies in this sector, preferring to extend lending to large, established companies at the expense of their smaller peers. According to S&P Global Capital IQ LCD, U.S. banks’ share of senior secured loans declined from 33% in 1995 to 8% in 2022.

The fund uses leverage black stoneWe have extensive data on private companies to identify attractive opportunities and provide capital primarily in return for secured debt. Secured debt is debt secured by collateral, which helps reduce the risks associated with lending. The majority of the Fund’s debt investments are in first-lien loans (over 98%). This means that if the company goes bankrupt, the collateral will be the first to be called upon.

Although BDCs are vulnerable to recessions, nearly all of the fund’s loans feature floating rates and a weighted average yield of 11.9%, making them a solid hedge if inflation and interest rates remain high. In addition, the high proportion of first-lien mortgage loans puts us in a good position even during economic downturns.

Blackstone Secured Lending Fund currently offers investors an annualized yield of 11.2% and paid a dividend of $2.17 per share this year. This dividend is well supported by earnings per share of $2.77 through the first three quarters of this year. Additionally, its payout ratio over the past four years has been approximately 84%, a high but sustainable ratio for a BDC, making it a solid high-yield dividend stock for income-oriented investors.

3. Ares Capital has a 9.7% dividend yield and a long history as a BDC.

Like the Blackstone Secured Lending Fund, Ares Capital is a BDC that invests in mid-sized companies through debt and equity investments.

Ares Capital has been around longer than Blackstone Secured Lending Fund, which gives investors a better understanding of how the company has performed in different economic environments. Since 2004, Ares Capital has delivered solid returns to patient investors that have weathered multiple recessions.

Ares Capital also invests heavily in first-lien and second-lien loans, accounting for 43% and 17% of the portfolio, respectively. In addition, 78% of loans are at variable interest rates, and the weighted average rate of return on investments is approximately 11.2%, which is expected to support high dividend payments.

Ares Capital offers investors an annualized yield of 9.7% and paid a dividend of $1.44 per share this year. The dividend is also well supported by earnings per share of $2.03 for the third quarter of the year. Additionally, Ares Capital’s dividend payout ratio over the past five years has been approximately 83% of earnings, making it a high-quality, high-yield dividend stock for investors to consider today.

final verdict

When analyzing high-yield dividend stocks, it is important to consider the business and company history. B. Riley Financial has a high dividend yield, but business has slowed sharply, so the high dividend yield doesn’t seem very sustainable.

To me, it comes down to two BDCs with sounder business models that better support high dividend yields. Ares Capital has a more expansive history, and investors can rest easy knowing that it has performed well over a long period of time, despite several economic downturns.

But if I had to pick one today, I’d give the Blackstone Secured Lending Fund a slight edge. Although the company has only been around for a few years, it is investing significantly more in first-lien debt, which would allow it to hold up a bit better in the event of a severe recession.