Dividends4Life: 3 BDCs to Buy for Their Big, Fat Yields

3 BDCs to Buy for Their Big, Fat Yields

Posted by D4L | Tuesday, September 02, 2014 | | 0 comments »

There is an enormous opportunity in lending to middle-market companies right now, and business development companies (just BDCs for short) are perfectly positioned to benefit. BDCs were created by an amendment to the Investment Company Act of 1940 and specialize in providing funding sources for small- and middle-market companies. Where this gets interesting to anyone playing the market is that to avoid taxation, BDCs must pass along at least 90% of their taxable income to investors. Thus, they’re another way to get your dividends.

As banks have stepped away from riskier lending in the aftermath of the credit crisis, BDCs have stepped up and filled the void. It is a huge opportunity and provides income seeking investors an opportunity to join the big private equity funds in profiting from the situation. My favorite BDC for individual investors is Apollo Investment Management (AINV). Fifth Street Finance (FSC) is a BDC that lends to and invests in small- and mid-sized companies in connection with an investment by private equity sponsors. KCAP Financial (KCAP) invests in companies with between $7.5 million and $50 million of EBITDA.

Source: InvestorPlace

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