In 2026, the seemingly forgotten Russell 2000 has emerged as the leading equity index, already up 5.6% compared with the S&P 500’s 1.2% gain. That’s because it is uniquely leveraged to a domestic-driven economic rebound, easing financial conditions, and renewed risk appetite for small-cap stocks.
Valuation saturation and global exposure trap the large-cap benchmarks. Meanwhile, small-cap companies benefit disproportionately from falling interest rates, improved access to credit, and rising mergers-and-acquisitions activity. These all lower their cost of capital and unlock growth. The index is also more sensitive to U.S. fiscal policy, infrastructure spending, and reshoring trends, allowing earnings growth to accelerate faster than that of multinational mega-caps facing currency and geopolitical headwinds.
After years of underperformance, relative valuations in the Russell 2000 entered 2026 at historically attractive levels, setting the stage for multiple expansion as investors rotate toward cyclical growth and away from overcrowded large-cap trades.
We have to admit that the surge of the Russell 2000 in 2026 came as somewhat of a surprise to us here at 24/7 Wall St. Yet, the reality is that after three years of double-digit gains for the S&P 500, many of the top stocks, including most of the Magnificent 7, are starting to underperform the index. In fact, only two of the Magnificent 7 outperformed the S&P 500 in 2025: Alphabet Inc. (NASDAQ: GOOGL | GOOGL Price Prediction) and Nvidia Corp. (NASDAQ: NVDA).
We screened our 24/7 Wall St. Russell 2000 research database for stocks with solid upside potential and dependable high-yield dividends. Four top small caps hit our screens, and they look like incredible buys for growth and income investors looking to establish small-cap positions with total return and huge passive income potential. Three of the four are Buy-rated at the top Wall Street firms we cover.
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 12 analysts and paying shareholders a 9.36% dividend. Ares Capital Corp. (NASDAQ: ARCC) is a high-yielding business development company 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 engaged in basic and growth manufacturing, business services, consumer products, healthcare products and services, and information technology sectors.
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 investment of $400 million, in companies with an EBITDA between $10 million and $250 million per year. 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 be an agent and lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.
Keefe Bruyette & Woods has an Outperform rating and a $22 target price.
Hercules Capital
This is the lender of choice for many innovative entrepreneurs and their venture capital partners. Hercules Capital Inc. (NYSE: HTGC) is a specialty finance company with a massive 8.57% dividend. The company focuses on providing financing solutions to venture capital-backed and institutional-backed companies across various technology and life sciences industries. It is structured as an internally managed, non-diversified, closed-end investment company.
The company’s business objectives are to increase its net income, net investment income, and net asset value through investments primarily in structured debt or senior secured debt instruments of venture- and institutionally backed companies across various technology-related industries, at attractive yields.
It invests in a range of companies active in the technology industry sub-sectors characterized by products or services that require advanced technologies, including:
- Computer software and hardware
- Networking systems
- Semiconductors
- Telecommunications equipment and media
- Semiconductor capital equipment
- Information technology infrastructure
Piper Sandler has an Overweight rating and a $20.50 target price.
Marine Products
While probably off the radar of many growth and income investors, Marine Product Corp. (NYSE: MPX) pays a solid 6.65% dividend and has significant upside potential. It is a manufacturer of fiberglass boats, and it offers a range of products to the family recreational market through its Chaparral brands and to the sportfishing market through its Robalo brands.
The company’s Chaparral sterndrive models include SSi Sportboats, SSX Luxury Sportboats, and the SURF Series. The Chaparral’s outboard offerings include OSX Luxury Sportboats and the SSi Outboard Bowriders. The product line includes:
- Chaparral – SSi Sport Boats
- Chaparral – SSX Sport Boats
- Chaparral – Surf Series
- Chaparral – OSX Sport Boats
- Robalo – Center Consoles
- Robalo – Cayman Bay Boats
- Robalo – Dual Consoles
The company sells its products through approximately 202 domestic independent authorized dealers, consisting of 64 Chaparral dealers, 47 Robalo dealers, and 91 dealers that sell both brands in the United States. It also sells its products to over 88 international dealers.
Starwood Property Trust
Starwood Capital is a well-established global investor with international investments spanning over 30 countries. It is an affiliate of this high-yielding company, which boasts a 10.60% dividend yield and is led by real estate legend Barry Sternlicht. Starwood Property Trust Inc. (NYSE: STWD) operates as a real estate investment trust (REIT) in the United States, Europe, and Australia. It operates through four segments.
The Commercial and Residential Lending segment originates, acquires, finances, and manages:
- Commercial first mortgages
- Non-agency residential mortgages
- Subordinated mortgages
- Mezzanine loans
- Preferred Equity
- Commercial mortgage-backed securities
- Residential mortgage-backed securities
The Infrastructure lending segment originates, acquires, finances, and manages infrastructure debt investments.
The Property segment primarily develops and manages equity interests in stabilized commercial real estate properties, including multifamily and net-leased commercial properties, held for investment purposes.
The Investing and Servicing segment:
- Manages and works out problem assets
- Acquires and contains unrated, investment-grade, and non-investment-grade rated CMBS comprising subordinated interests of securitization and re-securitization transactions
- Originates conduit loans to sell these loans into securitization transactions and acquire commercial real estate assets, including properties from CMBS trusts
Wells Fargo has an Outperform rating and a $22 target price.
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