BDCs
This is another installment of my subscriber request series; however, it is also an update of a video I posted approximately a year ago on BDCs. Here is a link:
   • BDCs: High Yield, High Risk, Or Both?...  
The following is a copy of the subscriber request from subscriber Stoyan Minev as follows:
“Stoyan Minev

Hey Chuck, I also think that the utility sector is way too overpriced. I really would like to hear your thoughts about one other kind of companies for income investors - BDC companies like ARCC, ORCC and one smaller one OCSL. They are like REITs and pay a major part of their earnings in form of dividends and would probably profit from rising interest rates because they should be able to pass the higher rate to the companies they invest in. What do you think?”

Statistically BDCs often look very attractive. Dividend yields often average 8% or better, earnings yields are also high because valuations appear low. But with BDCs statistics are not always what they appear to be on the surface. In theory, BDCs should perform very well when interest rates are declining as they have been for the past several years. However, many have not. Additionally, their dividend distributions are not fully qualified like regular companies. Investors often are paying taxes based on their ordinary income rates.

There are also many risks to consider before investing in BDCs. The credit risks of the companies they invested, the amount of leverage they carry, the future direction of interest rates are just a few. I will also highlight some of the pitfalls of investing in BDCs that appear attractive, but all is not what meets the eye.

Apollo Investment Corp (AINV), Ares Capital Corp (ARCC), Great Elm Capital Corp (GECC), Horizon Technology Finance Corp (HRZN), Main Street Capital (MAIN), Monroe Capital Corp (MRCC), Newtek Business Services (NEWT), Owl Rock Capital Corp (ORCC), Prospect Capital Corp (PSEC)

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#dividends #BDCs #investing