From BDCs to CEFs, Here’s How We’re Getting 8%+ Dividends in 2026 – The Contrary Investing Report

Core Viewpoint - The stock market, particularly the S&P 500, has historically outperformed other wealth-building methods, generating around a 10% annualized return, although it experiences volatility and periods of decline [1]. Group 1: Dividend Yield and Alternatives - The current dividend yield of the S&P 500 is approximately 1%, which can be insufficient for investors needing cash during downturns, leading to potential losses if shares are sold at low prices [2]. - Investors are increasingly looking for alternatives to stocks, such as assets with higher dividends, to provide income without selling shares during market downturns [3]. Group 2: Business Development Companies (BDCs) - BDCs are a popular option for accessing private investments, primarily lending to small- and mid-sized U.S. firms, which offers natural diversification [4]. - BDCs are required by law to distribute at least 90% of their income as dividends, similar to REITs, allowing them to avoid corporate income tax [5]. - Selectivity is crucial when investing in BDCs due to the inherent risks associated with smaller firms and potential high management fees [6]. Group 3: Performance of Specific BDCs - Blue Owl Capital Corporation (OBDC) has $6 billion in assets and offers an 11.7% yield, but has seen a 9% decline this year, including dividends [7]. - Main Street Capital Corporation (MAIN) is highlighted as a strong BDC, yielding around 5% currently, with a historical yield closer to 7% due to special dividends, outperforming OBDC and the benchmark BDC ETF [10]. Group 4: Closed-End Funds (CEFs) - Combining BDCs with equity-focused CEFs can enhance growth potential, as CEFs typically offer around an 8% average dividend yield [13]. - CEFs tracked by the CEF Insider service have returned over 14% this year, slightly underperforming the S&P 500's 17.5% return [14]. - The Adams Diversified Equity Fund (ADX) has achieved a market-beating total return of 23% this year, benefiting from its portfolio of U.S. blue-chip stocks [17]. Group 5: Market Trends and Future Outlook - CEFs began the year with an average discount of over 8% to net asset value (NAV) and are now closing at a 5.3% discount, indicating potential upward pressure on market prices [18][19]. - A mini-portfolio of four top CEF picks is being created, expected to yield an average of 9.2% and projected for over 20% upside in the coming year [22].