Better Ultra-High-Yield Dividend Stock: AGNC Investment vs. Ares Capital

AGNC Investment (NASDAQ: AGNC) and Ares Capital (NASDAQ: ARCC) have gigantic dividend yields. AGNC Investment's monthly dividend yields over 12.5%, while Ares Capital's quarterly payout yields 9.6%. Both are multiples above the S&P 500, which yields around 1.1% these days.

Here's a look at which of these ultra-high-yielding dividend stocks is the better option for income investors right now.

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AGNC Investment: Dividend stability as long as market conditions don't deteriorate

AGNC Investment is a mortgage REIT focused on investing in Agency MBS (pools of residential mortgages protected against credit risk by government agencies such as Fannie Mae). They're low-risk fixed-income investments with relatively low returns (low-to-mid single-digit yields). The mortgage REIT boosts its returns (and risk profile) by using leverage to invest in MBS (it had a 7.2 times leverage ratio at the end of the fourth quarter). This investment strategy can be very lucrative.

As long as AGNC Investment's returns are above its cost of capital (operating costs and dividend payments), it can maintain its current dividend. The REIT has paid the same monthly dividend since 2020.

The MBS market is currently strong. That drives the REIT's view that its returns and dividends should remain in alignment. However, if market conditions deteriorate, the REIT might need to reduce its dividend. That has happened several times in the past, including in 2020. Despite those cuts, AGNC has delivered an average annualized total return of 11.8% since its 2008 IPO, driven solely by its dividend.

Ares Capital: A long history of stable and growing dividends

Ares Capital is the largest BDC. It primarily makes direct loans to middle-market companies ($100 million to $1 billion in annual revenue). While these loans are riskier investments than Agency MBS, they also carry much higher interest rates (Ares' portfolio had a 9.3% weighted-average yield at the end of 2025). Further, Ares has done a masterful job underwriting loans and managing its investments over the years, as its annualized net realized loss rate is less than 0%.

The BDC also uses leverage to make additional debt investments. However, it has a relatively modest debt-to-equity ratio of 1.08. Ares Capital has a strong balance sheet, providing it with ample liquidity to continue expanding its portfolio.

Ares Capital's large and growing loan portfolio has supported a stable and rising dividend. The BDC has now paid a stable or growing dividend level for more than 16 consecutive years. The company generates core earnings in excess of its dividends, enabling it to build up a cushion that could cover its dividend for more than two quarters. The company's growing earnings and dividends have helped it deliver a 12% annualized total return to investors over the past 20 years.

More yield or more growth

AGNC Investment and Ares Capital both pay high-yielding dividends supported by the interest income of their debt investments. AGNC's higher current yield and monthly payment schedule make it the better option for more risk-tolerant investors seeking income above all else. Meanwhile, Ares Capital offers a little more growth potential as it increases the value of its portfolio and raises its dividend, making it better for those seeking higher total returns.

Matt DiLallo has positions in Ares Capital. The Motley Fool has positions in and recommends Ares Capital. The Motley Fool has a disclosure policy.