The Russell 2000 is a stock market index that tracks the performance of approximately 2,000 small-cap companies in the United States. It’s part of the broader Russell 3000 Index, which covers about 98% of the U.S. equity market, but specifically focuses on smaller companies with market capitalizations typically ranging from $300 million to $2 billion. These firms are often considered riskier but can offer higher growth potential compared to larger, more established companies.
The Russell 2000 is currently leading the major market benchmarks in 2026, outpacing the S&P 500 with a year-to-date gain of more than 22% amid a broad rotation into small-cap stocks. Before this sustained rally, the small-cap index saw only brief episodes of sharp outperformance, most notably the “Great Rotation” of July 2024. The index has been lagging mega-cap technology stocks for the bulk of the intervening years.
Historical data show that small-cap stocks tend to lead in the years following major market downturns. For example, after the 2008 financial crisis, the Russell 2000 significantly outperformed the S&P 500 from 2009 to 2011. However, small caps can underperform during recessions or high uncertainty due to their higher risk and lower liquidity. While the recent sell-offs earlier this year and in July do not qualify as a significant market meltdown, many of the highest-yielding stocks in the Russell 2000 are offering intriguing entry points.
We screened the index for the highest-yielding stocks and identified four that appear to be outstanding passive income ideas now. Passive income is characterized by its ability to generate revenue without requiring the earner’s continuous active effort, making it a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
Why Do We Cover Ultra-High-Yield Russell 2000 Stocks?
While not suited for everybody, those seeking to build strong passive income streams can benefit greatly from holding some of these top companies in their portfolios. Paired with more conservative blue-chip dividend giants, investors can employ a barbell approach to generate substantial passive income streams.
Ares Capital
The company specializes in providing financing solutions for the middle market and appears poised to reach new highs, garnering a Buy rating from seven analysts and yielding a 9.61% dividend. Ares Capital (NASDAQ:ARCC | ARCC Price Prediction) is a high-yielding business development company (BDC) that specializes in acquisitions, recapitalizations, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions for middle-market companies.
It also makes growth capital and general refinancing. It prefers to invest in companies in basic and growth manufacturing, business services, consumer products, healthcare products and services, and information technology.
The fund will also consider investments in industries such as:
- Restaurants
- Retail
- Oil and gas
- Technology
It focuses on investments in the Northeast, Mid-Atlantic, Southeast, and Southwest regions from its New York office; the Midwest region from its Chicago office; and the Western region from its Los Angeles office.
The fund typically invests between $20 million and $200 million, with a maximum of $400 million, in companies with EBITDA between $10 million and $250 million annually. It makes debt investments between $10 million and $100 million. The fund invests through:
- Revolvers
- First-lien loans
- Warrants
- Unitranche structures
- Second-lien loans
- Mezzanine debt
- Private high yield
- Junior Capital
- Subordinated debt
- Non-control preferred and common equity
The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically acquires stressed and discounted debt positions.
Ares Capital prefers to act as an agent and lead transactions in which it invests. The fund also seeks board representation in its portfolio companies.
Oxford Industries
There is a good chance you may be wearing clothing from this company, which pays a solid 7.63% dividend. Oxford Industries (NYSE:OXM) operates in the apparel industry, and owns and markets these brands:
- Tommy Bahama
- Lilly Pulitzer
- Johnny Was
- Southern Tide
- The Beaufort Bonnet Company
- Duck Head
- Jack Rogers
Oxford Industries distributes its products through its direct-to-consumer channels, consisting of its brand-specific full-price retail stores, e-commerce websites and outlet stores, and its wholesale distribution channel, which includes sales to various specialty stores, signature stores, department stores, multi-branded e-commerce websites and other retailers.
Additionally, it operates Tommy Bahama food and beverage locations, including Marlin Bars and full-service restaurants, generally adjacent to a Tommy Bahama full-price retail store.
Tommy Bahama designs, sources, markets, and distributes men’s and women’s sportswear and related products. Lilly Pulitzer designs, sources, markets, and distributes upscale collections of women’s and girls’ dresses, sportswear, and related products.
Starwood Property Trust
Run by real estate legend Barry Sternlicht, this is a high-quality real estate investment offering a reliable 11.50% ultra-high-yield dividend. Starwood Property Trust (NYSE:STWD) is a real estate investment trust that has kept its dividend intact for over 15 years as a public company and held the current payout steady for more than 10 years.
The company’s segments include:
- Commercial and Residential Lending
- Infrastructure Lending
- Property
- Investing and Servicing
The Commercial and Residential Lending segment is engaged in:
- Originating, acquiring, financing, and managing commercial first mortgages
- Non-agency residential mortgages
- Subordinated mortgages
- Mezzanine loans
- Preferred equity
- Commercial mortgage-backed securities
- Residential mortgage-backed securities
- Real estate and real estate-related debt investments in the United States, Europe, and Australia
The Infrastructure Lending Segment originates, acquires, finances, and manages infrastructure debt investments. The Property Segment acquires and manages equity interests in stabilized commercial real estate properties. And the Investing and Servicing segment includes a servicing business in the United States, an investment business, and a mortgage loan business.
Universal
This somewhat off-the-radar company is another one of the world’s leading tobacco merchants, and operates as a global tobacco leaf supplier rather than a cigarette manufacturer. Universal (NYSE:UVV) has reported strong demand, has been in business for almost 150 years, and pays a 7.12% dividend. Universal processes and supplies leaf tobacco and plant-based ingredients worldwide.
The company operates through two segments:
- Tobacco Operations
- Ingredients Operations
It procures, finances, processes, packs, stores, and ships leaf tobacco for sale to manufacturers of consumer tobacco products.
The company:
- Contracts, purchases, processes, and sells flue-cured, burley, and oriental tobaccos that are primarily used in the manufacture of cigarettes
- Dark air-cured tobaccos are used to manufacture naturally wrapped cigars, cigarillos, and smokeless and pipe tobacco products
Universal also provides value-added services, including:
- Blending, chemical, and physical tobacco testing
- Service cutting for various manufacturers
- Manufacturing reconstituted leaf tobacco
- Just-in-time inventory management services
- Electronic nicotine delivery systems
- Customer smoke testing services
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