Building a Dividend Investing Strategy: Why 9.4% Yields Beat the S&P 500's 1.1%

When Average Returns Aren’t Enough

The S&P 500 currently delivers a meager 1.1% dividend yield—a reality that leaves income-focused investors searching for better alternatives. For those serious about dividend investing, the market offers compelling opportunities: yields of 4.2%, 5.7%, and 9.4% that can meaningfully enhance portfolio income. Three companies stand out as meaningful contenders—Bank of Nova Scotia (NYSE: BNS), W.P. Carey (NYSE: WPC), and Ares Capital (NYSE: ARCC)—each representing a different risk-reward profile within a dividend investing framework.

The Conservative Play: Bank of Nova Scotia’s Turnaround Story

Bank of Nova Scotia (commonly known as Scotiabank) offers a 4.2% yield—nearly double the average U.S. bank’s 2.5%. The key question any savvy dividend investing approach requires: Why is this yield elevated compared to peers?

The answer lies in a strategic repositioning. Scotiabank, one of Canada’s banking titans in a highly regulated market, made a strategic misstep by expanding aggressively into Central and South America while domestic competitors targeted U.S. markets. Management has pivoted decisively, exiting underperforming regions and refocusing on Mexico, the U.S., and Canada. What distinguishes this scenario from a typical distressed turnaround is Scotiabank’s fortress-like position: it’s maintained annual dividend payments since 1833 and possesses the infrastructure of a major North American financial institution.

For dividend investing participants with lower risk tolerance, this represents an attractive entry point. A $2,000 allocation purchases approximately 26 shares, providing steady income from a company with deep competitive moats and proven resilience. The margin of safety here is substantial—Scotiabank’s established market position makes this yield sustainable even as the turnaround progresses.

The Growth Accelerator: W.P. Carey’s Reset and Rebound

W.P. Carey, a net lease real estate investment trust (REIT), delivers a 5.7% yield—but the headline yield doesn’t capture the full opportunity for dividend investing strategists. Late 2023 brought a pivotal decision: the company cut its dividend to exit the distressed office sector decisively rather than endure prolonged pain.

That reset proved to be a launching pad. Since the dividend cut, management has increased payouts every quarter—matching the growth trajectory that preceded the reset. More significantly, W.P. Carey exited the office market from a position of strength, not desperation, accumulating substantial dry powder to redeploy.

The REIT’s diversification amplifies its appeal: properties span warehouses, industrial facilities, and retail locations across the U.S. and Europe. The net lease model transfers maintenance, taxes, and insurance responsibilities to tenants, creating a stable cash flow environment. The third quarter 2025 results validated management’s strategy: adjusted funds from operations (FFO) grew 5.9% year-over-year, prompting upward revisions to full-year guidance.

For dividend investing participants seeking both income and capital appreciation, W.P. Carey represents the middle ground—moderate risk paired with tangible growth momentum. A $2,000 investment yields roughly 31 shares, combining an attractive current yield with the prospect of rising distributions as the portfolio matures.

The Income Maximizer: Ares Capital’s High-Yield Model

Ares Capital dominates this analysis with a 9.4% yield, placing it squarely in the business development company (BDC) sector. This elevated yield reflects the sector’s fundamental economics: BDCs lend to smaller, middle-market companies at high interest rates (Ares Capital’s Q3 2025 average rate: 10.6%), accepting credit risk in exchange for outsized income generation.

This income model requires unflinching honesty about risk. During recessions, smaller companies deteriorate faster than large-cap counterparts, and high-debt burdens amplify distress. Ares Capital’s dividend has contracted during each recent recession—a pattern likely to repeat. For aggressive dividend investing practitioners, however, this volatility is acceptable compensation within a diversified portfolio.

What separates Ares Capital from lesser BDCs is execution. The company operates one of the sector’s most respected platforms, managing through prior downturns while maintaining industry-leading performance metrics. A $2,000 position captures approximately 95 shares, delivering substantial current income to investors with the risk capacity to weather occasional dividend cuts.

Constructing Your Dividend Investing Framework

The choice between these three entities crystallizes the core tension in dividend investing: higher current income demands tolerance for greater risk. Bank of Nova Scotia represents the fortress—turnaround progress paired with banking-sector stability. W.P. Carey straddles the middle—reasonable yield enhancement combined with growth prospects. Ares Capital maximizes income at the cost of accepting meaningful dividend volatility.

Rather than viewing these as either-or propositions, sophisticated dividend investing portfolios often layer all three, adjusting allocation weights based on individual risk profiles. A conservative retiree might weight the capital toward Scotiabank; a balanced investor spreads allocations across all three; an aggressive income seeker concentrates in Ares Capital.

The $2,000 entry point—yielding 26, 31, or 95 shares depending on selection—provides sufficient scale to establish meaningful positions while preserving capital flexibility. The key insight remains unchanged: accepting measured risk within a structured dividend investing strategy unlocks yields five to nine times higher than S&P 500 averages, fundamentally altering the arithmetic of income generation.