We recently compiled a list of the 7 Dividend Stocks with 10%+ Yield. In this article, we are going to take a look at where Capital Southwest Corporation (NASDAQ:CSWC) stands against the other dividend stocks with 10%+ yield.
Dividend stocks have kept their appeal among investors due to the steady yields and income they provide. However, in the past year or so, all eyes have been on anything related to artificial intelligence. These stocks have not only surged but have also lifted the overall market much higher compared to dividend-paying stocks. Nevertheless, tech stocks have also joined the dividend game, unable to resist the trend as several major companies began distributing dividends starting in 2024. This highlights the financial strength of these companies, as they generate more cash than they currently need to reinvest.
Despite the lower yields on these tech stocks, their dividend payouts are punching above their weight contributing to the overall payments made by companies in the broader market. According to a report by S&P Dow Jones Indices, in the second quarter of 2024, companies listed in the index collectively paid out $153.4 billion in dividends, marking an increase from $151.6 billion in the previous quarter and up from $143.2 billion in the same period last year. The report highlighted that Alphabet's dividend initiation contributed $9.3 billion to the Q2 2024 increase, while initiations from Brookings, Meta Platforms, and Salesforce in Q1 2024 accounted for $7.2 billion, collectively making up 53% of the S&P 500's year-to-date dividend gain. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said that although the gains without the new initiations are expected to achieve a record dividend payment for 2024, their ongoing commitment to dividend payouts will notably boost the total payout, prompting investors and boards that do not currently pay dividends to reassess their strategies.
Dividend investors often debate between dividend yields and dividend growth, not fully realizing that dividend yield is crucial for sustained dividend growth. For instance, in the case of the Dividend Aristocrats Index, which has raised dividends for 25 consecutive years, maintaining a high yield hasn't been at the expense of growth. Over the past 26 years ending in 2023, the index consistently outperformed its benchmark with higher yields, typically ranging between 2% and 2.9%. On average, the index boasted a yield of 2.5%, significantly higher than the market average of 1.8%, according to a report by S&P Dow Jones Indices. To learn more about high-yield stocks, read Very High Yield Dividend Stocks With Upside Potential.
However, it's worth noting that high dividend yields aren't always the most practical choice. Analysts generally suggest targeting dividend yields in the range of 3% to 6%, as this range typically offers potential for both dividend growth and appreciation in stock value. In one of its reports, an Illinois-based financial planning company, Nuveen, highlighted that global companies with moderate dividend yields (between 0% and 3%) tend to demonstrate stronger earnings growth, profitability, and profit margins compared to those with higher yields or those that don't pay dividends at all. These factors also contribute to reducing risk, particularly during periods of market volatility.
The debate between these two strategies appears endless. We believe that combining growth and yields can present better results for investors. How investors navigate yield traps ultimately depends on their caution and strategy. With that, let's take a look at some of the best dividend stocks with over 10% yield.
Our Methodology:
For this list, we used a stock screener and selected dividend stocks with yields above 10%, as of July 16. Among those stocks, we chose companies that have relatively stable dividend histories, however, a lot of the companies on the list don't have a consistent record of paying dividends due to their exceptionally high yields. They either stopped or reduced their dividend payments in 2020 due to the pandemic or because they were facing financial difficulties. We've also mentioned the hedge fund sentiment for each stock using Insider Monkey's Q1 2024 database. The stocks are ranked in ascending order of their dividend yields, as of July 16.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A suited executive shaking hands, celebrating the success of a major new deal.
Capital Southwest Corporation (NASDAQ:CSWC) is a Texas-based capital market company that provides capital to lower middle market companies across the capital structure. The company may not be widely recognized in the investment arena but it has exhibited significant financial growth, with its trailing twelve-month revenue reaching $178.14 million. In fiscal Q4 2024, the company reported a total investment income of $46.4 million, up significantly by 25% from the same period last year. Its total investment portfolio also grew by $270.2 million during FY24 to $1.5 billion, up from $1.2 billion in the prior-year period.
Capital Southwest Corporation (NASDAQ:CSWC)'s growing popularity among investors is evident from recent insider purchases, highlighting confidence in its trajectory and stability. Despite relying on higher-risk external borrowing, the firm's strong internal expectations and strategic foresight, as demonstrated in investor conferences and consistent dividend affirmations, reinforce this confidence.
Dividends are important for business development companies because they typically constitute the primary source of long-term total return for investors. Capital Southwest Corporation (NASDAQ:CSWC) is particularly notable in this regard as the company, along with its regular dividends, also holds a history of paying supplemental dividends to shareholders. It has paid special dividends to shareholders in every quarter since 2022, which makes CSWC one of the best dividend stocks with over 10% yield. Currently, it offers a quarterly dividend of $0.57 per share with a dividend yield of 11.45%, as of July 16.
As of the close of Q1 2024, 6 hedge funds in Insider Monkey's database held stakes in Capital Southwest Corporation (NASDAQ:CSWC), down from 12 in the previous quarter. These stakes have a collective value of more than $21 million. Ken Griffin's Citadel Investment Group was one of the company's leading stakeholders in Q1.
Overall CSWC ranks 5th on our list of the best dividend stocks to buy with 10%+ yield. You can visit 7 Dividend Stocks with 10%+ Yieldto see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of CSWC as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than CSWC but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
