Our $20,000 Portfolio Yields 9.3% and Has Crushed the S&P 500 Over 5 Years

Investors love dividend stocks, especially those with ultra-high yields, because they provide a substantial income stream and offer significant total return potential. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. At 24/7 Wall St., we consistently emphasize the potential of total return to our readers. It is one of the most effective ways to enhance the prospects of overall investing success. Once again, total return refers to the collective increase in a stock’s value, including dividends.

Over five years, this hypothetical $20,000 investment portfolio would have consistently delivered an impressive $1,860 in annual dividends, providing a reliable 9.3% yield while simultaneously outperforming the S&P 500. This success stems from a meticulously crafted strategy focusing on high-quality, dividend-paying stocks across diverse sectors such as consumer staples, utilities, and real estate investment trusts (REITs), combined with selective growth stocks that have compounded returns over time.

While the S&P 500 has delivered solid returns over the last five years, the portfolio’s blend of income generation and capital appreciation, driven by careful stock selection and a focus on total return, has consistently surpassed the index’s performance, achieving an annualized return of approximately 12% compared to the S&P 500’s 10% over the same period.

All the stocks, which are equally split with $5,000 for the portfolio, are suitable for those seeking growth and income to balance more secure investments like high-yield savings accounts and CDs. The overall 9.3% yield for the portfolio is based on levels and posted yields when this post was written. The gains for the S&P 500 vary, but are all within 1% of the data secured at Yahoo Finance. All are also rated Buy by some of the top Wall Street firms that we cover.

Why do we cover ultra-high-yield dividend stocks?

While not suited for everybody, those trying to build strong passive income streams can do exceptionally well with some of these top companies in their portfolios. Paired with more conservative blue-chip dividend giants, investors can employ a barbell approach to generate substantial passive income streams.

Capital Southwest

Based in Dallas, this company, like all of our portfolio stocks, looks ready to break out to new highs. Capital Southwest Corp. (NASDAQ: CSWC) is an internally managed business development company. The company is a market lending firm focused on supporting the acquisition and growth of middle-market businesses with investments across the capital structure, including first lien, second lien, and non-control equity co-investments.

It specializes in providing customized debt and equity financing to lower middle market (LMM) companies in a broad range of investment segments located primarily in the United States.

The investment objective is to produce attractive risk-adjusted returns by generating current income from its debt investments and capital appreciation from its equity and equity-related investments.

The company invests primarily in:

• First-lien debt securities, secured by security interests in portfolio company assets
• It also invests in equity interests in its portfolio companies alongside its debt securities
• Offers managerial assistance to its portfolio companies

Capital Southwest Corporation’s three and five-year returns beat the S&P 500.

• 3 year: 56.95% versus 52.47%
• 5 year: 173.27% versus 89.92%

JMP Securities has a Market Outperform rating and a $25 target price.

Fidus Investment

This off-the-radar company has quietly been churning out gains year after year. Fidus Investment Corp. (NASDAQ: FDUS) operates as an externally managed, closed-end, non-diversified management investment company that provides customized debt and equity financing solutions to lower middle-market companies.

The company’s investment objective is to provide attractive risk-adjusted returns by generating both current income from debt investments and capital appreciation from equity-related investments.

It seeks to partner with business owners, management teams, and financial sponsors by providing:

• Customized financing for change of ownership transactions
• Recapitalizations
• Strategic acquisitions
• Business expansion and other growth initiatives

Fidus Investment may invest in the equity securities of its portfolio companies, such as preferred stock, common stock, warrants, and other equity interests, either directly or in conjunction with its debt investments. The company’s investment activities are managed by Fidus Investment Advisors, its investment advisor.

Over the past five years, the shares have risen by 312.51% versus the S&P 500’s gain of 90.64%.

B. Riley has a Buy rating with a $22 target price.

Main Street Capital

Main Street Capital Corp. (NASDAQ: MAIN) has helped over 200 private companies grow or transition through the provision of flexible private equity and debt capital solutions. This company is a favorite across Wall Street and offers a substantial dividend. Main Street Capital is a private equity firm that provides equity capital to lower-middle market companies.

The firm also provides debt capital to middle-market companies for:

• Acquisitions
• Management buyouts
• Growth financings
• Recapitalizations
• Refinancing

The firm seeks to partner with entrepreneurs, business owners, and management teams, and generally provides “one-stop” financing alternatives within its lower-middle market portfolio.

Main Street Capital typically invests in lower-middle-market companies with annual revenues ranging from $10 million to $150 million.

The firm’s middle market debt investments are in businesses that are generally larger than its lower middle market portfolio companies. It also creates majority and minority equity.

Main Street Capital’s one, three, and five-year returns all beat the S&P 500:

• 1 year: 46.98% versus 22.26%
• 3 year: 80.68% versus 52.97%
• 5 year: 201.85% versus 90.55%

The shares have four Buy ratings according to AI reports, but no price targets were located.

Sixth Street Specialty Lending

This boutique giant has crushed the S&P 500 over the past five years. Sixth Street Specialty Lending Inc. (NYSE: TSLX) is a specialty finance company focused on lending to middle-market companies.

The company seeks to generate current income primarily in United States-domiciled middle-market companies through direct originations of senior secured loans and, to a lesser extent, originations of mezzanine loans and investments in corporate bonds, equity securities, and other instruments.

It invests in first-lien debt, second-lien debt, mezzanine, and unsecured debt and equity, and other investments.

The company’s first-lien debt may include:

• Stand-alone first-lien loans
• Last out first-lien loans, which are loans that have a secondary priority behind super-senior first-out first-lien loans
• Unitranche loans, which are loans that combine features of first-lien, second-lien, and mezzanine debt, generally in a first-lien position
• Secured corporate bonds with similar features to these categories of first-lien loans

Sixth Street Specialty Lending Advisers manages it.

Sixth Street Specialty Financing one, three, and five-year returns all crushed the S&P 500:

• 1 year: 31.99% versus 22.26%
• 3 year: 70.22% versus 52.97%
• 5 year: 137.01%  versus 90.04%

Wells Fargo has an Overweight rating with a $24 price objective.

Five Stocks Paying 7% and Higher Dividends That Nobody Ever Talks About

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