This study investigated risk and protective factors associated with dyslexia and literacy development, both at the group and individual level, to gain more insight in underlying cognitive profiles and possibilities for compensation in high-IQ children. A sample of 73 Dutch primary school children included a dyslexic group, a gifted-dyslexic group, and a borderline-dyslexic group (i.e., gifted children with relative literacy problems). Children were assessed on literacy, phonology, language, and working memory. Competing hypotheses were formulated, comparing the core-deficit view to the twice-exceptionality view on compensation with giftedness-related strengths. The results showed no indication of compensation of dyslexia-related deficits by giftedness-related strengths in gifted children with dyslexia. The higher literacy levels of borderline children compared to gifted children with dyslexia seemed the result of both fewer combinations of risk factors and less severe phonological deficits in this group. There was no evidence for compensation by specific strengths more relevant to literacy development in the borderline group. Accordingly, the findings largely supported the core-deficit view, whereas no evidence for the twice-exceptionality view was found. Besides practical implications, the findings also add to knowledge about the different manifestations of dyslexia and associated underlying cognitive factors at the higher end of the intelligence spectrum.