We recently compiled a list of the 10 Extreme Dividend Stocks to Invest in Now. In this article, we are going to take a look at where Barings BDC, Inc. (NYSE:BBDC) stands against the other dividend stocks.
In 2024, dividend stocks underperformed the broader market as attention shifted to high-flying tech stocks. The Dividend Aristocrat index, which tracks companies with a minimum of 25 consecutive years of dividend growth, rose only 6.3% compared to the broader market’s impressive 27% gain. Despite this, analysts remain positive about the long-term outlook for dividend stocks, as they have historically delivered stronger performance over extended periods.
Analysts believe dividend stocks could see a resurgence in 2025 due to increased market volatility. The last time these stocks outperformed the broader market was in 2022, as concerns over a potential recession pushed investors toward sectors like utilities, consumer goods, and others associated with value stocks and reliable earnings. While there’s no guarantee that recession fears or a bear market will emerge in 2025, the significant rallies of 2023 and 2024—which have contributed to dividend stocks lagging—often lead to heightened volatility, particularly if ambitious growth projections begin to falter. Moreover, as the new administration implements its economic policies, periods of uncertainty and market disruptions could arise. In such scenarios, dividend-paying stocks, seen as stable and dependable, might become more attractive to investors seeking steady returns during turbulent times.
Also read: 10 Best Halal Dividend Stocks To Invest In
Dividend yields play a crucial role in drawing investors to dividend stocks. While analysts often suggest prioritizing stocks with a strong track record of dividend growth, the allure of high yields remains significant. Experts caution against falling for yield traps, urging investors to focus on companies that steadily enhance shareholder returns. Still, proponents of high-yield investments emphasize the importance of dividend yields in an overall investment strategy.
In their study Income Illusions: Challenging the High Yield Stock Narrative, published in the March 2024 Journal of Asset Management, Yin Chen and Roni Israelov analyzed the impact of dividends on investment returns. They divided stocks into high-dividend and low-dividend categories based on the median dividend yield from the prior year. Their research, covering the top 1,500 US stocks from January 1964 to December 2021, revealed that high-dividend portfolios outperformed in both returns and risk. These portfolios achieved an average annual return of 13.8% with 15.6% volatility, compared to low-dividend portfolios, which returned 11.8% annually with a higher volatility of 21.9%. This performance gap resulted in a 3.6% difference in compound annual growth rate. In addition, high-dividend portfolios experienced smaller losses during market downturns. However, while high-dividend stocks generally performed better over the full study period, a long-short investment strategy in these stocks resulted in an annual loss of nearly 1% between 2003 and 2021, with the strongest returns recorded between 1983 and 2002.
Simply chasing high-yield stocks isn’t enough; investors should also examine a company’s balance sheet and overall financial health. Firms with solid financials are better positioned to increase their dividend payouts consistently. The best-case scenario is when a company combines high dividend yields with steady dividend growth—a goal that many businesses have successfully achieved. Given this, let’s take a look at some of the best dividend stocks with extreme dividend yields.
Our Methodology:
For this list, we used a stock screener and selected dividend stocks with yields ranging from 9% to 23%, as of January 23. 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. The stocks are ranked in ascending order of their dividend yields, as recorded on January 23. We also mentioned hedge fund sentiment data for these stocks using Insider Monkey’s database of 900 hedge funds as of Q3 2024.
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 close up view of a bank of computers and wires, showing the complex technology powering the company’s financial services.
Barings BDC, Inc. (NYSE:BBDC)
Dividend Yield as of January 23: 10.53%
Barings BDC, Inc. (NYSE:BBDC) is an American business development company, based in North Carolina. The company specializes in debt investments in middle-market companies. It has established itself as a leading business development company by capitalizing on growth opportunities and delivering significant value to its shareholders. Over the past year, the stock has delivered a nearly 10% return. This achievement is particularly notable given its low-risk nature. Unlike high-beta stocks, which typically involve greater risk for substantial returns, Barings BDC provides a more stable investment option. Its steady end markets, attractive dividends, and rising net asset value contribute to its lower risk profile.
Barings BDC, Inc. (NYSE:BBDC) continues to prioritize growth initiatives aimed at increasing portfolio value and driving net investment income. In the third quarter of 2024, the company completed 11 new investments amounting to $88.4 million, along with additional investments of $36.6 million in its existing portfolio companies. The company’s total investment income for the quarter came in at $70.9 million and its net investment income amounted to $30.2 million.
Barings BDC, Inc. (NYSE:BBDC) is one of the best dividend stocks on our list as the company has been making regular dividend payments to shareholders since 2007. It currently pays a quarterly dividend of $0.26 per share and has a dividend yield of 10.53%, as of January 23.
The number of hedge funds tracked by Insider Monkey owning stakes in Barings BDC, Inc. (NYSE:BBDC) grew to 11 in Q3 2024, from 9 in the previous quarter. These stakes have a total value of over $21.7 million. With over 1 million shares, Two Sigma Advisors was the company’s leading stakeholder in Q3.
Overall BBDC ranks 7th on our list of the extreme dividend stocks to invest in now. While we acknowledge the potential for BBDC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BBDC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
