The Attraction of Gladstone Capital's and Gladstone Commercial's Dividend Strategies for Income Investors in 2026

For income investors seeking stability in an era of historically low yields, the dividend strategies of Gladstone Capital Corporation (GLAD) and Gladstone Commercial Corporation (GOOD) have emerged as compelling yet contentious propositions. Both companies, operating in the business development company (BDC) and real estate investment trust (REIT) sectors respectively, offer monthly payouts that rival traditional fixed-income assets. However, their sustainability hinges on a delicate balance between earnings generation and payout discipline. This analysis evaluates the appeal and risks of their dividend strategies as of late 2025, drawing on recent financial disclosures and management guidance.

Gladstone Commercial: A High-Yield REIT with a Conservative Payout Ratio?

Gladstone Commercial (GOOD) has maintained an annual dividend yield of 10.65% as of December 2025, making it one of the most attractive options for income-focused investors. This yield is supported by a reported dividend payout ratio of 37.50 for the quarter ending September 2025. At first glance, this figure appears extraordinarily high-suggesting the company distributes 37.5 times its earnings. However, this likely reflects a misinterpretation or formatting error in the data, as payout ratios exceeding 100% (or 1.0 in standard terms) are typically unsustainable for most firms. A more plausible interpretation is that the ratio is 37.5%, implying that GOOD retains 62.5% of its earnings, a conservative approach for a REIT. This would align with the company's strategy of reinvesting in its commercial real estate portfolio to drive long-term growth.

Nevertheless, the ambiguity in the payout ratio underscores a critical risk: if the actual ratio is closer to 100% or higher, as seen in some BDCs, the dividend could be vulnerable to economic shocks or declining asset values. For now, GOOD's yield remains a standout, but investors must await clearer disclosures to assess its durability.

Gladstone Capital: A High-Yield BDC with a Payout Ratio in Excess of 100%

Gladstone Capital (GLAD) presents a different profile. As of late 2025, it offers a 9.3% yield on common shares and 8.56% on preferred shares, such as its 6.25% Series A Cumulative Redeemable Preferred Stock. However, its financials reveal a more precarious position. For the quarter ending June 2025, GLAD's dividend payout ratio was 1.50, meaning it distributed 50% more in dividends than its net investment income (NII). This trend continued into September 2025, with an annualized payout ratio of 123%. Such a ratio is not uncommon for BDCs, which often rely on retained earnings or debt to fund dividends, but it raises questions about long-term sustainability.

Management has signaled intent to maintain the monthly dividend of $0.15 per common share in Q4 2025, resulting in an annualized yield of 9.6%. While this demonstrates confidence, it also highlights a reliance on historical earnings and balance sheet flexibility. GLAD's historical median payout ratio of 1.24 suggests that its 2025 ratio is an outlier, but with projected NII of $2.01 per share for the year, the payout ratio remains near 100%. This leaves little room for error should economic conditions deteriorate.

Evaluating Sustainability: Risks and Rewards

The allure of GLAD and GOOD lies in their ability to generate high yields in a low-interest-rate environment. For GLAD, the challenge is managing leverage and interest rate risk while maintaining its dividend. Its 123% payout ratio implies that any decline in NII could force a dividend cut or a shift to using retained earnings or debt. GOOD's situation is less clear due to the ambiguity in its payout ratio, but its REIT structure requires it to distribute at least 90% of taxable income to avoid corporate taxes. This structural constraint could provide a floor for dividends, though it does not guarantee stability if earnings falter.

For preferred shares, GLAD's 6.25% Series A offers a fixed monthly distribution of $0.130208 per share, or $1.5625 annually. While preferred shares typically have lower yields than common shares, they offer more predictable income and priority in liquidation. However, the absence of a stated payout ratio for preferred shares complicates assessments of their sustainability.

Conclusion: A High-Risk, High-Reward Proposition

Gladstone Capital and Gladstone Commercial cater to income investors willing to accept elevated risks for above-market yields. GLAD's payout ratio in excess of 100% and GOOD's opaque payout metrics suggest that both companies are operating near or beyond their earnings capacity. While this could signal strong confidence in future performance, it also exposes them to volatility in economic conditions or asset valuations.

For investors, the key is to weigh the immediate appeal of these yields against the potential for cuts or conversions to capital gains. Diversification and a clear understanding of each company's balance sheet dynamics are essential. In 2026, the sustainability of these dividends will depend not only on management's ability to navigate macroeconomic headwinds but also on the willingness of investors to tolerate the inherent risks of high-yield strategies.