In this article, we will be taking a look at 10 BDC Dividend Stocks for Increased Income. To skip our detailed analysis of dividend investing, you can go directly to see the 5 BDC Dividend Stocks for Increased Income.
A Business Development Company, or BDC, is a special kind of investment option, that slightly differs from typical dividend stocks like Moody’s Corporation (NYSE: MCO), McDonald’s Corporation (NYSE: MCD), Verizon Communications (NYSE: VZ), and AT&T Inc. (NYSE: T). These stocks aim to combine the attributes of publicly traded companies and closed-end investment vehicles. By doing so, BDCs tend to offer investors more exposure to private equity, or investments similar to venture capital. These specialty finance companies are increasingly being considered active and attractive investment options today, particularly for income investors in the market.
According to a report on BDCs and how they act as viable income opportunities in the middle-market, published by Guggenheim, it has been stated that these stocks tend to offer investors much higher incomes than typical stocks or dividend stocks. This is due in part to the fact that the loans made by BDCs have relatively high interest rates, and also because these companies are bound to distribute at least 90% of their taxable income. The latter is what allows BDCs to be exempt from corporate-level tax, after all. As such, BDCs have the potential to bring in higher incomes for investors, in comparison to other investment options like high-yield corporate bonds, preferred securities, real estate investment trusts (REITs), and the US 10-Year Treasury, among others.
Let’s now look at some statistics compiled and published near the end of 2017, in November, to substantiate the claim made above. As of November 30th, 2017, a yield comparison of various indices showed the ability of BDCs to far outperform other investment options in terms of the income they offered to potential investors. The average yields for BDCs were taken to be about 9.8%, compared to 8.2% for MLPs, or master limited partnerships, 5.68% for high-yield corporate bonds, 5.99% for preferred securities, 4.17% for REITs, 3.28% for investment-grade corporate, 2.41% for the US 10-year treasury, and finally, 1.9% for the S&P 500 Index. This clear gap between the higher yields, and thus higher offered incomes, of BDCs, stands to be a highly attractive investment offer for many investors today. And while BDCs are certainly not the best-suited for all portfolios, they can most definitely still be considered to be among the most notable investment options available to income investors today.
Investing has become difficult by the day, even for the smart money. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Without further ado, let’s take a look at the 10 BDC dividend stocks for increased income.
Our Methodology
We have selected stocks of business development companies with dividend yields of over 5%. Insider Monkey tracks the data of about 873 hedge funds, and we have also used this data to pick dividend stocks that are highly popular among hedge funds today. For each stock we have mentioned its yield and the number of hedge funds holding a stake in it, ranking them from the lowest to the highest dividend yield. Finally, we have used analysts’ ratings to determine which stocks are favorably placed in analyst and investor circles, picking stocks with mostly positive ratings and strong fundamentals.
BDC Dividend Stocks for Increased Income
10. Gladstone Investment Corporation (NASDAQ: GAIN)
Number of Hedge Fund Holders: 6
Dividend Yield: 5.7%
Gladstone Investment Corporation (NASDAQ: GAIN) is a company specializing in lower middle market, mature stage, buyouts, refinancing existing debt, senior debt securities, senior subordinated debt securities, junior subordinated debt securities, limited liability company interests, and warrants or options. The company ranks 10th on our list of BDC dividend stocks for increased income.
Oppenheimer analysts hold a Perform rating on shares of Gladstone Investment Corporation (NASDAQ: GAIN) as of this April.
In the fiscal first quarter of 2022, Gladstone Investment Corporation (NASDAQ: GAIN) had an NII of $1.42, beating estimates by $1.13. The company’s TII was $18.03 million, up 68.36% year over year and beating estimates by $2.88 million. Gladstone Investment Corporation (NASDAQ: GAIN) has gained 23.50% in the past 6 months and 47.08% year to date.
By the end of the second quarter of 2021, 6 hedge funds out of the 873 tracked by Insider Monkey held stakes in Gladstone Investment Corporation (NASDAQ: GAIN) worth roughly $3.4 million. This is compared to 4 hedge funds in the previous quarter with a total stake value of approximately $2 million.
Like Moody’s Corporation (NYSE: MCO), McDonald’s Corporation (NYSE: MCD), Verizon Communications (NYSE: VZ), and AT&T Inc. (NYSE: T), Gladstone Investment Corporation (NASDAQ: GAIN) is a notable stock pick among investors today.
9. Main Street Capital Corporation (NYSE: MAIN)
Number of Hedge Fund Holders: 8
Dividend Yield: 6.1%
Main Street Capital Corporation (NYSE: MAIN), a private equity firm, specializes in equity capital for lower middle market companies. It ranks 9th on our list of BDC dividend stocks for increased income and is based in Houston, Texas.
This March, Raymond James upgraded shares of Main Street Capital Corporation (NYSE: MAIN) from Market Perform to Outperform, with a $41 price target.
In the second quarter of 2021, Main Street Capital Corporation (NYSE: MAIN) had an NII of $0.62, beating estimates by $0.05. The company’s TII was $67.29 million, up 29.39% year over year and beating estimates by $5.22 million. Main Street Capital Corporation (NYSE: MAIN) has gained 12.67% in the past 6 months and 32.76% year to date.
By the end of the second quarter of 2021, 8 hedge funds out of the 873 tracked by Insider Monkey held stakes in Main Street Capital Corporation (NYSE: MAIN) worth roughly $19 million. This is compared to 10 hedge funds in the previous quarter with a total stake value of approximately $34 million.
Like Moody’s Corporation (NYSE: MCO), McDonald’s Corporation (NYSE: MCD), Verizon Communications (NYSE: VZ), and AT&T Inc. (NYSE: T), Main Street Capital Corporation (NYSE: MAIN) is a notable stock pick among investors today.
8. Capital Southwest Corporation (NASDAQ: CSWC)
Number of Hedge Fund Holders: 8
Dividend Yield: 6.4%
Capital Southwest Corporation (NASDAQ: CSWC), a business development company working with credit and private equity, alongside venture capital investments in middle market companies, ranks 8th on our list of BDC dividend stocks for increased income. The company is based in Dallas, Texas.
This May, B. Riley raised its price target on shares of Capital Southwest Corporation (NASDAQ: CSWC) from $19 to $25, and reiterated a Neutral rating on the stock.
In the fiscal first quarter of 2022, Capital Southwest Corporation (NASDAQ: CSWC) had an NII of $0.43, beating the previous quarter’s NII of $0.39. The company’s TII was $18.58 million, up 22.52% year over year and beating estimates by $0.22 million. Capital Southwest Corporation (NASDAQ: CSWC) has gained 26.35% in the past 6 months and 54.91% year to date.
By the end of the second quarter of 2021, 8 hedge funds out of the 873 tracked by Insider Monkey held stakes in Capital Southwest Corporation (NASDAQ: CSWC) worth roughly $17 million. This is compared to 9 hedge funds in the previous quarter with a total stake value of approximately $10.2 million.
Like Moody’s Corporation (NYSE: MCO), McDonald’s Corporation (NYSE: MCD), Verizon Communications (NYSE: VZ), and AT&T Inc. (NYSE: T), Capital Southwest Corporation (NASDAQ: CSWC) is a notable stock pick among investors today.
7. Gladstone Capital Corporation (NASDAQ: GLAD)
Number of Hedge Fund Holders: 6
Dividend Yield: 6.7%
Gladstone Capital Corporation (NASDAQ: GLAD), a private equity and venture capital fund, specializes in lower middle market, growth capital, add-on acquisitions, debt investments in senior loans, and other areas. The company ranks 7th on our list of BDC dividend stocks for increased income.
Oppenheimer holds a Perform rating and $10 price target on shares of Gladstone Capital Corporation (NASDAQ: GLAD) as of this June.
In the fiscal third quarter of 2021, Gladstone Capital Corporation (NASDAQ: GLAD) had an NII of $0.20, in line with estimates. The company’s TII was $13.67 million, up 16.51% year over year and beating the previous quarter’s revenue of $12.88 million. Gladstone Capital Corporation (NASDAQ: GLAD) has gained 18.33% in the past 6 months and 33.41% year to date.
By the end of the second quarter of 2021, 6 hedge funds out of the 873 tracked by Insider Monkey held stakes in Gladstone Capital Corporation (NASDAQ: GLAD) worth roughly $4.1 million. This is compared to 5 hedge funds in the previous quarter with a total stake value of approximately $2 million.
Like Moody’s Corporation (NYSE: MCO), McDonald’s Corporation (NYSE: MCD), Verizon Communications (NYSE: VZ), and AT&T Inc. (NYSE: T), Gladstone Capital Corporation (NASDAQ: GLAD) is a notable stock pick among investors today.
6. Fidus Investment Corporation (NASDAQ: FDUS)
Number of Hedge Fund Holders: 4
Dividend Yield: 6.8%
Fidus Investment Corporation (NASDAQ: FDUS), a business development company working with leveraged buyouts, refinancing, change of ownership transactions, and recapitalizations, among other things, is 6th on our list of BDC dividend stocks for increased income. The company is based in Illinois.
This May, B. Riley raised its price target on shares of Fidus Investment Corporation (NASDAQ: FDUS) from $16.50 to $18. The firm also reiterated a Buy rating on the stock at the same time.
In the second quarter of 2021, Fidus Investment Corporation (NASDAQ: FDUS) had an NII of $0.42, beating estimates by $0.05. The company’s TII was $21.83 million, up 6.82% year over year and beating estimates by $1.63 million. Fidus Investment Corporation (NASDAQ: FDUS) has gained 16.57% in the past 6 months and 42.02% year to date.
By the end of the second quarter of 2021, 4 hedge funds out of the 873 tracked by Insider Monkey held stakes in Fidus Investment Corporation (NASDAQ: FDUS) worth roughly $12.3 million. This is compared to 5 hedge funds in the previous quarter with a total stake value of approximately $10 million.
Like Moody’s Corporation (NYSE: MCO), McDonald’s Corporation (NYSE: MCD), Verizon Communications (NYSE: VZ), and AT&T Inc. (NYSE: T), Fidus Investment Corporation (NASDAQ: FDUS) is a notable stock pick among investors today.
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Disclosure: None. 10 BDC Dividend Stocks for Increased Income is originally published on Insider Monkey.
