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Best Bets in BDCs

04/08/2016 9:00 am EST


Tim Plaehn

Investment Research Analyst, Investors Alley

An uncertain future for the financial sector should encourage investors to stick with business development companies (BDCs) that show both business and share price stability, explains Tim Plaehn, editor of Dividend Hunter.

To help you sort out the few more attractive BDC stocks from the pack, here are five stocks that pay very safe and healthy dividends with strong share price stability.

Main Street Capital (MAIN) can be viewed as a core holding. Since its 2007 IPO, MAIN has never reduced its dividend rate. Investors have also received special dividends up to two times a year.

Compared to other BDCs, this is not a high-yield stock, but the dividend growth and monthly dividends offset the current 7.0% yield.

With an almost $5 billion market cap, Ares Capital (ARCC) is by far the largest company in the BDC space. Ares Capital has been conservative and uses less debt leverage than BDC rules allow.

The shares have been in a downtrend since early 2014, even though business financials have remained steady. That trend seems to have reversed now in early 2016. ARCC yields 10.5%.

Goldman Sachs BDC (GSBD) came to market one year ago with a March 2015 IPO. The BDC is generating net investment income well above its current $0.45 quarterly dividend rate.

A high level of excess cash flow and the Goldman Sachs management of this BDC make it a compelling investment choice. GSBD currently yields 9.0%.

Golub Capital BDC (GBDC) is a mid-sized, $900 million market cap, BDC that has paid a steady, level dividend since 2011.

Through the end of 2015 the company has increased its net asset value per share for 14 consecutive quarters. That is a value creation record that few BDCs can match. GBDC currently yields 7.4%.

Triangle Capital Corporation (TCAP) is a well-managed BDC with excess cash flow that trades at a mid-teens yield.

When the excess cash flow builds up, Triangle capital has a history of adding to the quarterly dividend. This BDC is more stable and better managed than the current 14.6% yield indicate

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By Tim Plaehn, editor of Dividend Hunter

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