Originally published January 29, 2025
The first month of 2025 will soon be behind us. We’ve seen new inflation data and earnings season start to ramp up. Today, we’ll hear from the FOMC as it concludes its January meeting.
The S&P 500 and the Nasdaq have gone nowhere this year. The Dow Jones Industrial Average has shown some slight optimism with a 5% year-to-date gain. That’s how I would describe what I’ve seen so far in 2025—hints of optimism.
The general mood, however, is a bit more fearful.
For that, I look at the CNN Fear & Greed Index to check the overall sentiment. The current reading is 38, smack dab in the fear range. And it’s been stuck in fear for all of 2025. In fact, that fear sentiment goes back to December 18.
I don’t think it’s time to start shorting the market or liquidating to cash.
The price of our stocks will go up and down in waves as investor sentiment shifts. We’ll continue to collect dividends through all of it. And I still recommend that you buy more of your favorite companies on any dips.
I will always be bullish on dividend stocks.
All that said, sometimes I spot a macro situation where we can speculate on the movement of the market. And collect dividends along the way, of course.
BDC Struggles Create Opportunity
A business development company, or BDC, invests in a portfolio of small or distressed businesses. Beyond making an investment, the BDC must also provide management support.
BDCs were created as part of the Small Business Investment Act of 1980 to attract additional capital for small and medium-sized companies. It also gives the average investor access to small and/or private companies that we wouldn’t get otherwise.
The best part: To qualify for tax benefits, BDCs must pass through most of their income to shareholders resulting in above-average yields.
I’ve always been a fan of BDCs. Right now, you might be able to find an opportunity to lock in shares at better prices. And a lower entry price means a higher dividend yield.
The success of a BDC depends on the performance of its portfolio. The money paid as dividends comes largely from loan payments and profits from equity stakes of companies exiting the portfolio through an IPO or acquisition.
Recently, many BDCs are seeing higher prepayments combined with a tougher climate for new investments. This causes the portfolio to shrink and a lower NAV (net asset value) attributable to each shareholder. As the NAV falls so will the share price.
As long as businesses look to refinance into lower-rate loans, prepayments will continue.
Fortunately, I think this trend will start to reverse by the fourth quarter of 2025. When it does, we’ll see share prices recover and dividend payments start to rise again.
You’ll want to look for BDCs that have seen share prices fall due to lower NAV. And you’ll want to find those that are making new originations at least every quarter. Some of my favorite BDCs focus on the technology or life sciences sectors.
Collecting Experiences Is a Hot Hobby
If you follow me on Instagram you know I post a lot of stories from my travels. In 2024, I hit Atlanta, New York, San Francisco, Miami, Orlando, Baltimore, and Chicago. I’ve been bitten by the travel bug and I’m not alone. Gen Z and Millennials like me are still supporting the trend of collecting experiences instead of stuff.
On the Sunday after Thanksgiving, the TSA screened over 3 million passengers—an all-time daily record. Last September, McKinsey’s research group estimated $8.6 trillion would be spent on travel in 2024. That’s about 9% of global GDP. The company claims travel spending is at its highest level since 1960.
And this momentum won’t slow down in 2025.
The International Air Transport Association (IATA) expects 5.2 billion people will fly this year—another record. And the World Travel & Tourism Council recently projected that travel levels will grow an average of 5.8% annually through 2032.
I think the first quarter of the year will be slow for the travel industry. As we push through the year, I expect to see travel spending ramp up. And I want that in my portfolio.
But the major airlines don’t pay a decent dividend:
Neither do the big hotel brands:
-
Marriott International (MAR) yields 0.91%.
-
Hyatt Hotels (H) yields 0.39%.
-
Hilton Hotels (HLT) yields just 0.24%.
These aren’t even high enough to meet my minimum threshold, let alone the above-average yield I need to offset market uncertainty. So, I had to get a little creative to find my favorite travel play for 2025.
Yesterday, I laid out all the details for my Yield Shark subscribers. This stock is a solid double-digit yielder that could also hand us double-digit capital gains! Plus, my two favorite BDCs for 2025 are listed in our open portfolio. As always, my loyal Dividend Digest readers can try out Yield Shark with our 90-day, money-back guarantee.
If you’re not yet ready to commit to Yield Shark, that’s okay. I still recommend looking for your own favorite ways to play these two trends.
For more income, now and in the future,
Kelly Green
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our videos.
© Mauldin Economics
More Innovative ETFs Topics >
