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Oasis Of Dividends From This 10.8% Yielding Sector
Published Wed, 23 Dec 2020 12:45:30 -0500 on Seeking Alpha
Seeking AlphaDividend IdeasOasis Of Dividends From This 10.8% Yielding SectorDec. 23, 2020 12:45 PM ET|| Includes: AINV, ARCC, CGBD, CRWD, CSWC, FDUS, FSK, GAIN, GBDC, GLAD, GSBD, HCXY, HCXZ, HRZN, HTFA, HTGC, MAIN, MDLA, MRCC, NMFC, OCSL, ORCC, PFLT, PNNT, PSEC, TCPC, TPVG, TPVY, TSLXby: BDC BuzzBDC Buzz Sustainable DividendsBuild a portfolio with sustainable dividend yields ranging from 8% to 12%SummaryThe average BDC is currently yielding 10.8% with an average dividend coverage ratio of 110% for Q3 2020 and improving net interest margins.
This article discusses one of the BDCs that I recently purchased currently yielding 12.1% annually taking into account the special dividend announced this week.
BDCs have outperformed over the last few quarters mostly due to reporting stronger-than-expected results.
I'm expecting the average BDC to deliver total returns of around 25% from their current prices through 2021.
Introduction
This article is part of a series discussing how to build a retirement portfolio using general market volatility and business development companies ("BDCs") many of which have sustainable dividend yields between 7% and 12%.
As mentioned in "This 10% Yielding Sector Will Continue To Rally In 2021," the average BDC covered its Q3 2020 dividend by around 110% partially due to improving net interest margins. I'm expecting many BDCs to announce dividend increases and/or special dividends similar to the company discussed in this article.
Current BDC Yields
Similar to REITs, BDCs are regulated investment companies (RICs) required to distribute more than 90% of their profits and gains to shareholders, avoiding corporate income taxes before distributing to shareholders. This structure prioritizes income to shareholders (over capital appreciation), driving higher yields that currently range from around 7% to 13% (shown below). Please note that the dividend yields take into account the current regular dividend plus all... Read more
| Stock name | Last trade | P/E | Earnings/Share | Dividend/Share | Dividend yield | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| MONROE CAPITAL | 10.48 | 18.4 | 0.57 | 1.40 | 13.60 | |||||||
| PENNANTPARK INVESTMENT | 6.32 | 21.8 | 0.29 | 0.72 | 11.32 | |||||||
| PROSPECT CAPITAL | 6.71 | 16.8 | 0.40 | 0.72 | 10.76 | |||||||
| APOLLO INVESTMENT | 16.78 | 14.2 | 1.18 | 1.80 | 10.73 | |||||||
| FIDUS INVESTMENT | 14.84 | 8.8 | 1.69 | 1.56 | 10.53 | |||||||
| TCP CAPITAL | 13.75 | 29.3 | 0.47 | 1.44 | 10.48 | |||||||
| HORIZON TECHNOLOGY FINANCE | 11.85 | 9.5 | 1.25 | 1.20 | 10.12 | |||||||
| OAKTREE SPECIALTY LENDING | 4.90 | 0.0 | -1.39 | 0.50 | 10.02 | |||||||
| PENNANTPARK FLOATING RATE CAPITAL | 11.68 | 30.0 | 0.39 | 1.14 | 9.81 | |||||||
| HERCULES TECH GROWTH CAP | 13.26 | 10.0 | 1.32 | 1.28 | 9.55 | |||||||
| GOLDMAN SACHS BDC | 20.29 | 22.5 | 0.90 | 1.80 | 8.88 | |||||||
| GLADSTONE CAPITAL | 9.50 | 63.3 | 0.15 | 0.84 | 8.84 | |||||||
| ARES CAPITAL | 19.19 | 10.5 | 1.82 | 1.60 | 8.39 | |||||||
| CAPITAL SOUTHWEST | 21.81 | 12.2 | 1.78 | 1.60 | 7.21 | |||||||
| GOLUB CAPITAL BDC | 18.55 | 15.7 | 1.18 | 1.28 | 6.89 | |||||||
| GLADSTONE INVESTMENT | 12.34 | 7.4 | 1.67 | 0.82 | 6.73 | |||||||
| MAIN STREET CAPITAL | 43.18 | 16.8 | 2.57 | 2.46 | 5.69 |