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High Dividend Of The Year: 15% Yield, Out Of Favor Sector, Big Returns With BDCL

Published Fri, 01 Nov 2019 08:40:00 -0400 on Seeking Alpha

Co-produced with Trapping Value and Treading Softly
Business Development Companies (or BDCs) are companies involved primarily in lending to small and mid-sized companies. Following the 2008 crisis, BDCs have grown significantly as regulatory pressure limited banks' ability to lend to small and medium sized companies. The banking exit from this sector has allowed multiple specialized companies to take their place. BDCs are also set up as Registered Investment Companies or RICs and are required to distribute at least 90% of their taxable income to shareholders.
We visit this segment today as it lies in tatters with investors sitting rather disillusioned on a pile of realized or unrealized losses. To begin with we can see the glaring difference in the performance of the S&P 500 ETF (SPY) and the VanEck Vectors BDC Income ETF (BIZD), which yields 9.5%, over the last 5 years. The 70% differential is rather distressing but it does tell about half the story. Note neither BDCL nor BIZD issue K-1 tax forms.

On a total return basis BDC's have fared much better and have narrowed the gap between the major indices.

While the income has been good, investors are still holding an underperforming asset class and wondering if it would be best to get rid of these investments in lieu of broader market exposure. This is understandable as even that performance of 34% total returns has been driven by a few strong BDCs, while most BDCs have lagged the sector ETF's... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
PENNANTPARK INVESTMENT 6.32   21.8 0.29 0.72 11.32
PROSPECT CAPITAL 6.71   16.8 0.40 0.72 10.76
PENNANTPARK FLOATING RATE CAPITAL 11.68   30.0 0.39 1.14 9.81
ARES CAPITAL 19.19   10.5 1.82 1.60 8.39
MAIN STREET CAPITAL 43.18   16.8 2.57 2.46 5.69
SPDR S&P 500 ETF 301.29   0.0 0.00 5.42 1.82


Older articles featuring Pennantpark Investment (PNNT):
Why Investors Are Selling 12% Yielding Monroe Capital
Golub Capital BDC - Expect A Stable 8% Dividend And Slight Share Appreciation Over Time
Juul Investor BlackRock TCP Capital Currently Yielding 10.3%
Tax-Free Portfolio Yielding 10%
Building A Retirement Portfolio With 6% To 9% Yield: Apollo Investment
The Big Boys Continue To Pile Into This Dividend Sector: Goldman Sachs BDC
43 Over 10% Yield But Under $10 Priced Dividend Dogs For November
Building A Retirement Portfolio With 6% To 9% Yield: Part 5
Monroe Capital: Avoid This 14% Yield Trap
High-Yield BDC Sector Continues To Outperform The S&P 500 In 2019