We recently published a list of 10 Best Dividend Stocks Under $5. In this article, we are going to take a look at where Oxford Square Capital Corp. (NASDAQ:OXSQ) stands against the other dividend stocks under $5.
Dividends have consistently been a strong source of returns over time. These stocks hold both theoretical and practical significance in assessing stock values. Although dividend stocks have underperformed the broader market in recent years, their long-term performance remains steady.
Since the beginning of 2024, the Dividend Aristocrats Index—which monitors companies that have consistently raised their dividends for at least 25 consecutive years—has yielded returns of over 8% for investors. However, this performance has fallen short compared to the broader market, which has surged by nearly 19% during the same period. Despite this shortfall, 2024 has been a favorable year for dividends overall. This improvement is largely attributable to several major technology firms, previously known for not paying dividends, announcing the start of their dividend programs. Moreover, these companies have collectively distributed billions in their inaugural dividend payments.
Also read: 12 Best Dividend Stocks For Steady Growth
The long-term performance of dividend stocks also takes into account periods of high interest rates, during which other asset classes typically experience declines. This doesn’t imply that dividend stocks only perform well during episodes of high interest rates. While there isn’t a clear connection between their performance and interest rates, historical data shows that they tend to remain relatively stable regardless of the rate environment. For instance, in certain periods of rising US interest rates, such as the mid-1970s, dividend-paying stocks outperformed the broader market. Conversely, as rates decreased from the mid-1980s to the mid-1990s, the performance of high-yield stocks relative to the market remained relatively stable. Even if we set aside historical data and concentrate on more recent performance, we find that elevated interest rates did not have any serious impact on the performance of dividend equities. For example, in 2022, when the Federal Reserve raised its federal funds rate seven times to tackle persistent inflation—four of which were consecutive hikes of 75 basis points—dividend stocks outperformed the broader market. This could be due to the fact that dividend-paying companies tend to be well-established and more stable, with enough confidence in their cash flows to commit to returning cash to shareholders. Moreover, committing to a dividend imposes financial discipline. Instead of using excess cash for acquisitions that may or may not create value, repurchasing shares at uncertain prices, or funding speculative growth initiatives, executives are compelled to manage payouts responsibly.
Given investors’ growing interest in dividend stocks, more companies are initiating and increasing their dividend payments. A key driver behind this trend is that many companies, particularly large tech firms, have substantial cash reserves and are rapidly boosting their free cash flows. This strong financial footing allows them to reward investors with higher dividends. According to the latest report from S&P Dow Jones Indices, companies in the index paid $153.4 billion in dividends during the second quarter of 2024, up from $151.6 billion in the previous quarter and $143.2 billion in the same period last year. The report also highlighted that there were 539 dividend increases reported, compared to 460 in the same period last year, marking a 17.2% year-over-year growth. The total amount of these increases reached $20.4 billion for the quarter, up significantly from $9.8 billion in Q2 2023. With that, we will take a look at some of the best dividend stocks under $5.
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Oxford Square Capital Corp. (NASDAQ:OXSQ)
Number of Hedge Fund Holders: 2
Share Price as of the close of August 23: $2.95
Oxford Square Capital Corp. (NASDAQ:OXSQ) is an American non-diversified investment management company that invests in corporate debt securities and collateralized loan obligations (CLOs). This exposure to CLO equities sets the company apart from other business development companies. These types of equities represent a form of credit investment created by pooling various loans, typically from companies with below-investment-grade ratings, which increases the risk level of CLOs. According to the company’s recent earnings presentation, CLO equity makes up 32.7% of its investment portfolio, making OXSQ particularly sensitive to interest rate changes. While CLOs introduce significant risks to the company’s portfolio, they are also generating the highest returns.
In the second quarter of 2024, Oxford Square Capital Corp. (NASDAQ:OXSQ) reported a total investment income (TII) of $11.4 million, up from $10.4 million in the previous quarter. CLOs contributed $3.9 million to its TII during the quarter. The stock has surged by over 2.4% since the start of 2024, and analysts hold a positive view of the stock. This optimism is further supported by its recent quarterly earnings. The company’s investment activities included acquiring around $28.8 million in assets, with sales totaling approximately $3.4 million and repayments of about $15.8 million. Additionally, the primary market issuance for US leveraged loans saw a significant increase compared to the previous year.
Oxford Square Capital Corp. (NASDAQ:OXSQ) is one of the best dividend stocks on our list as the company offers monthly dividend payments to shareholders. In addition, the company has never missed a dividend since 2006. Currently, its monthly dividend comes in at $0.035 per share for a dividend yield of 14.24%, as of August 23.
At the end of Q2 2024, 2 hedge funds tracked by Insider Monkey held stakes in Oxford Square Capital Corp. (NASDAQ:OXSQ), down from 4 in the previous quarter. The consolidated value of these stakes is nearly $3 million.
Overall OXSQ ranks 10th on our list of the best dividend stocks under $5. While we acknowledge the potential for OXSQ 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 timeframe. If you are looking for an AI stock that is more promising than OXSQ 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.
