The DoubleLine Income Solutions Fund (DSL) has nearly returned its entire original purchase price to investors through dividend payments alone over the past decade.
Investors who bought DSL in April 2016 at $16.99 per share have since collected $16.59 per share in total payouts, representing 97.6% of the original investment cost.
Because DSL pays dividends monthly, investors are on track to reach full dividend repayment within approximately four months from the time of writing.
The fund is managed by Jeffrey Gundlach, widely known in financial circles as the “Bond God,” and currently yields 12.2% annually.
DSL has posted a 92% total return since April 2016 when dividends are reinvested, significantly outpacing the State Street SPDR Bloomberg High-Yield Bond ETF (JNK).
The fund’s dividend history has been remarkably stable, dipping only once during the pandemic-affected market conditions of 2021, before recovering with two healthy special payouts since then.
As a closed-end fund, DSL currently trades at a 6.7% discount to its net asset value, well below its five-year average discount of 2.4%, presenting an attractive entry point for income investors.
The fund carries 23.5% leverage and holds approximately 53% of its portfolio in bonds with durations of zero to three years, with a further 23.1% in the three-to-five-year range.
The bond market’s 10-year breakeven inflation rate has been trending steadily lower and currently hovers around 2.25%, not far from the Federal Reserve’s 2% target.
Ares Capital (ARCC), the largest business development company in the market, represents another significant holding that has returned $9.41 per share in dividends since a September 2021 purchase at $20.36 per share.
ARCC currently yields 9.5%, and investors who reinvested dividends over the holding period have seen a total return of approximately 57%.
BDCs like Ares Capital are required by law to distribute at least 90% of their taxable income as dividends, a structure similar to real estate investment trusts that supports consistently high yields.
At the end of the second quarter, ARCC had loans outstanding to 619 companies, up sharply from 566 companies a year earlier, demonstrating active portfolio growth despite the rate environment.
Approximately 59% of ARCC’s loan book consists of first-lien senior-secured loans, meaning the company stands first in line for repayment if any borrower encounters financial difficulty.
According to Goldman Sachs (GS), 76% of small businesses in the United States are currently using artificial intelligence, with 93% of those users reporting a positive impact on their operations.
As AI adoption drives growth among small and medium-sized businesses, demand for the type of lending that ARCC specialises in is expected to increase meaningfully over the coming years.
While 71% of ARCC’s portfolio is floating-rate, which poses some risk in a falling rate environment, management has been actively originating new loans to offset that exposure.
The broader investment thesis centers on recovering the upfront cost of an investment entirely through dividend income, prioritising high yields, payment safety, and monthly distribution schedules.
