BDCs can be an excellent source of high income, but they are not the holy grail that some investors believe. The group faces mounting pressures as well as categorical drawbacks (that are often overlooked). In this report, we share updated data on over 35 big-yield BDCs, review our concerns with the group, highlight 3 top BDCs that standout as attractive, and then conclude with a few alternative high-income opportunities that are currently worth considering too.
Ares Capital: 40 Big-Yield BDCs, Compared
In this report, we compare 40+ big-yield BDCs, including a special focus on industry stalwart, Ares Capital (ARCC). Specifically, we rank the BDCs based on various metrics, including price-to-book value, dividend yield and a variety of other factors. We then dive into the specifics on Ares, including a discussion of how it is fortifying its financials for a potential macroeconomic storm. We conclude with our strong opinion about investing in BDCs at this point in the market cycle, and our specific views on investing in Ares Capital, in particular.
Ares Capital: Big-Yield BDC, Fortifying for the Storm
Ares Capital is a popular big-dividend (9.7% yield) BDC. It has a long track record of success in providing capital (financing) to diverse middle market companies. However, on a go-forward basis, you cannot feasibly underwrite all 490 portfolio companies Ares works with. Fortunately, Ares does it for you, and they’re good at it. Also fortunately, you do have the ability to assess the current market environment (i.e. the big macroeconomic challenges that are coming) and how it will affect Ares’ unique business (we also do this for you in this report). And after reviewing Ares in detail (i.e. the business, the financials, the risks), we conclude with our strong opinion on investing.
Ares Capital: 40 Big-Yield BDCs Compared
Many income investors love Ares Capital (ARCC) for its big dividend yield and long history of healthy performance. But considering the current market environment, are the shares still worth owning? Or are there better BDC options available? In this report, we share comparative data on over 40 big-yield BDCs, and then dive deeper into Ares (including its business, valuation, dividend safety and risks). Next, we briefly consider two Ares alternatives (Blue Owl and Hercules Capital). Finally, we conclude with our strong opinion on investing in these specific big-yield BDC opportunities, especially with BDC earnings season right around the corner.
100 Tempting Big Yields: These 4 Worth Considering
If you are an income-focused investor, there are many big-yield strategies to choose from. However, not all of them may be right for you. In this report, we share updated data on a wide variety of big-yield opportunities, including over 100 big-yield REITs, CEFs, BDCs and more. Then we highlight four names from the list that are particularly interesting and worth considering. Specifically, we highlight three tempting big-yield opportunities that we are currently avoiding, followed by one very attractive big-yielder that we currently own.
Update: 40 Big-Yield BDCs, Silicon Valley Bank Warning
As mentioned in our previous note, BDCs are like banks, only riskier. Not only are BDCs facing increasing stress due to slowing economic growth and increasing interest rates (i.e. the tradeoff between higher floating rate interest payments received and higher default risk on loans), but some BDCs (such as those focused on venture capital) are dramatically over-exposed to fallout from the Silicon Valley Bank mess. In this note, we share updated data on 40 BDCs, and then dive deeper into 4 specific venture-capital-focused BDCs—and how we expect them to fare in light of the SVB mess—buyer beware!
Ares: 40 Big-Yield BDCs, Silicon Valley Bank Warning
Business Development Companies (“BDCs”) are like banks, only riskier. And some BDCs are heavily concentrated in the venture capital (“VC”) space, just like Silicon Valley Bank (SIVB) that just shuttered its doors as the result of a VC-led bank run. In this report, we review Ares Capital (including its investment industry exposures and risks) and then compare it to 40 other BDCs, including four in particular that are heavily concentrated in the VC space. We conclude with our strong opinion about investing in BDCs, Ares Capital and VC-focused BDCs in particular.
BDCs: Financially Strong, Despite Deteriorating Market
9.6% Yield BDC: Risks and Rewards Increasing
The business development company (“BDC”) we review in this report is attractive to many income-focused investors (the current yield is 9.6%, paid quarterly). However, the entire BDC industry is facing growing challenges as the benefits of rising interest rates are increasingly offset by the challenges (portfolio company defaults) caused by an economy headed towards recession. In this report, we review the company (including an overview of the business, the current market dynamics, dividend strength, valuation and risks) and then conclude with our opinion on investing.
Fed Rate Hikes To Impact Top Big-Dividend BDCs
With the Fed set to raise interest rates another 75 basis points on Wednesday (following its 2-day open market committee meeting which kicks off today), it’s worthwhile to revisit big-dividend BDC and how they are impacted by rising rates. This note shares data on how many of the most popular publicly-traded BDCs are impacted differently by rising rates depending on the structure of their balance sheets (floating-versus-fixed-rate assets and liabilities, as well as leverage levels). We also highlight a few of our favorite BDCs (two we own and one we are considering) that yield 9.1%, 10.0% and 10.2%, respectively.
Attractive Big-Dividend BDC: 7.9% Yield
In addition to the healthy 7.9% dividend yield, there are lots of things to like about this attractive business development company (“BDC”), including its low exposure to cyclical industries, its impressive portfolio quality, extensive industry relationships and its conservative balance sheet, to name just a few. In this report, we review the business model, portfolio characteristics, strategies and advantages, portfolio performance, dividend yield and safety, financial position, risks and finally conclude with our opinion on the stock’s risk-reward opportunity at the current valuation.
Big-Dividend BDCs: The 5 We Own (Yielding 6.0%, 9.1%, 8.2%, 8.1% and 8.5%)
Business Development Companies, or “BDCs,” basically provide financing (debt and equity) to private companies that are usually a bit too risky for ordinary banks to work with (due especially to stringent post-financial crisis regulatory rules). However, by building a portfolio of these companies, BDCs can reduce risks, and pay income-focused investors the big dividend yields that they love. This report provides an overview of current BDC valuations, and then reviews five of our favorite BDCs, currently yielding 6.0%, 9.1%, 8.2%, 8.1% and 8.5%, respectively.
Healthy 8.5% Yield BDC: Strong Balance Sheet, Liquidity
The business development company (“BDC”) we review in this report is healthy and has advantages over its peers. For example, its large size, seasoned management team and strong balance sheet all give it a leg up (versus peers and versus other high yield investments) as it grows its track record of 46 consecutive quarters of stable to growing dividend payments. In this report, we review the business, balance sheet, liquidity position, dividend strength, valuation and risks. We conclude with our opinion on investing.
Ares 12% Yield: It Sticks Out Like A Sore Thumb
Ares Capital (ARCC) is a big-dividend business development company (“BDC”) that has sold off hard during the pandemic because of its exposure to small (“middle-market”) businesses (i.e. the business than have been hit particularly hard). In this article we review the business (including important sector exposures), the balance sheet liquidity (to deal with the crisis), dividend safety, valuation and risks, and then conclude with our opinion on why this particular BDC stands out like a sore thumb.