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Easy 9.1% Yield From Solar Senior Capital Plus Upcoming Rally

Published Thu, 13 Dec 2018 00:51:24 -0500 on Seeking Alpha

Quick BDC Market Update Over the last three months, the average business development company ("BDC") stock price has declined by over 10% likely due to investors seeking higher yields on non-investment grade debt as discussed in previous articles. I firmly believe that the recent declines have not been driven by underlying fundamentals, especially as high-yield default rates continue to decline as discussed in "Corporate debt levels and default rates diverge" and the "latest sell-off overpricing recession risk."
As shown below, BDCs started to rally as many reported strong Q3 2018 results, followed by another decline that could have been partially due to tax-loss harvesting and could keep prices lower through mid-to-late December (see discussion at the end of this article).

The following table shows the current pricing for each BDC compared to the closing lows over the last 52 weeks. As you can see, many companies are trading within 5% of previous lows as well as the S&P 500, high-yield corporate bond ETFs such as the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Bloomberg Barclays High Yield Bond ETF (JNK), and UBS ETRACS Wells Fargo Business Development Company ETN (NYSEARCA: BDCS) and UBS ETRACS 2X Leveraged Long Wells Fargo Business Development Company ETN (NYSEARCA: BDCL).

As mentioned last week in "Tax-Loss Harvesting And Merger Fears Driving 10%+ Yield For BlackRock TCP Capital?" I have... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
TCP CAPITAL 14.10   13.8 1.02 1.44 10.31
OAKTREE SPECIALTY LENDING 4.90   0.0 -1.39 0.50 10.02
SARATOGA INVESTMENT 21.75   8.9 2.44 2.12 9.64
ARES CAPITAL 16.34   7.4 2.20 1.56 9.58
GOLDMAN SACHS BDC 20.13   12.0 1.67 1.80 8.90
SOLAR CAPITAL 19.96   11.2 1.78 1.64 8.19
PENNANTPARK FLOATING RATE CAPITAL 12.59   14.6 0.86 0.95 7.64
OAKTREE STRATEGIC INCOME 8.27   12.0 0.69 0.62 7.49
GOLUB CAPITAL BDC 17.60   12.8 1.37 1.28 7.41
MAIN STREET CAPITAL 36.03   9.7 3.70 2.34 6.71
SPDR BARCLAYS CAPITAL HIGH YIELD BOND ETF 34.83   0.0 0.00 1.98 5.70
ISHARES IBOXX $ HIGH YIELD CORPORATE BOND FUND 83.62   0.0 0.00 4.50 5.36