An 8.9% Yielder I've Never Heard Of

This BDC pays out nearly 8.9% in regular, special and supplemental dividends, but can it keep up the pace? [Wealthy Retirement]( SPONSORED [Look at What Obama Is Up to Now!]( On September 22, 2021, Obama will get his last laugh. That's when a group of his hand-picked cronies may single-handedly bring this market to a sudden and destructive end. To continue reading, [click here](. [SAFETY NET]( An 8.9% Yielder I've Never Heard Of Kristin Orman, Research Director, The Oxford Club [Kristin Orman] Even after spending two decades on Wall Street, I occasionally run across stocks that I've never heard of. It doesn't happen often, but imagine my surprise when I discovered that this week's find has a fat dividend yield. Capital Southwest Corp. (Nasdaq: CSWC) is a business development company (BDC). BDCs invest in private companies. They also usually pay big dividends. Capital Southwest is no exception. This year, it will pay out $1.72 per share in dividends to its shareholders. That gives Capital Southwest a yield north of 7%. But that 7% yield doesn't tell Capital Southwest's entire dividend story. It also has a history of paying out what the company calls "supplemental dividends." Last year, it paid out supplemental dividends of $0.10 per share each quarter. The supplemental dividends were approved by the board of directors in 2018 and are expected to continue this year. That brings the total supplemental and ordinary dividends Capital Southwest is expected to pay out this year to $2.12 and its forward yield to nearly 8.9% - not too shabby for a BDC I've never heard of. While a regular dividend is often paid out quarterly or monthly, a special dividend is a one-time dividend issued in addition to the regular one. It's not expected, and there's no guarantee that a special dividend will reoccur. Meanwhile, Capital Southwest's supplemental dividend is a regularly occurring dividend paid in addition to the ordinary dividend. Can it continue generating substantial income for investors? Let's dig into the company's financials to find out. SPONSORED [SHOCKING: $100 Billion Surging Into the 5G Market]( [Closeup $100 Bills]( What do Verizon, AT&T, T-Mobile, Dish Network, Charter Communications and Comcast have in common? According to Barron's, they're all participating in "secret bidding" to secure as much as $100 billion worth of 5G spectrum. The big winner in all of this frenzied spending? This little-known tech stock, which trades for less than $20 a share. [Get the scoop here...]( In Capital Southwest's last fiscal year, which ended on March 31, the company's net investment income (NII) was $31.67 million. NII is the income a BDC earns from its investments in assets like loans, bonds, stocks, etc. NII is the best measure of the cash that a BDC generates. It's also the best way to determine a BDC's ability to pay a dividend since it represents a BDC's cash flow. Capital Southwest's NII is heading in the right direction. NII grew 12.2% from the $28.23 million it produced in its fiscal year 2020. And over the last three years, NII has almost doubled. It's up 95.13% from $16.23 million in fiscal 2018. There aren't any NII estimates, so Oxford Income Letter subscribers won't find Capital Southwest listed in the automated SafetyNet Pro database. However, net income is expected to rise, so we'll assume that NII will be higher this year as well. What Is SafetyNet Pro?SafetyNet Pro is a groundbreaking tool that predicts dividend cuts with stunning accuracy. With it, you can determine the dividend safety rating of nearly 1,000 stocks. Access to SafetyNet Pro is reserved exclusively for subscribers of Marc's newsletter, The Oxford Income Letter. To learn more about SafetyNet Pro and The Oxford Income Letter, [click here now](. So far, so good. Let's take a look at how much cash the regular and supplemental dividends are costing the company. Last year, Capital Southwest paid out nearly $40 million in dividends. Despite trending in the right direction, NII fell $8.23 million short in 2020. This year, the BDC's dividend bill will likely remain the same. Even though the company's NII this year should be higher than last year's, it's unlikely that it will cover the dividend. Sometimes BDCs sell stock so that they have cash to make additional investments. Those investments will, in turn, increase NII. If the BDC isn't able to generate enough NII in the near future, the supplemental dividend that investors have counted on for three years could be at risk. Dividend Safety Rating: C [Dividend Grade Guide] If you have a stock whose dividend safety you'd like Chief Income Strategist Marc Lichtenfeld to analyze, leave the ticker in the [comments]( section. You can also search for your favorite dividend stock by clicking on the magnifying glass in the upper right-hand corner of the [Wealthy Retirement homepage]( and typing in the name of the company. 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