Life-Changing Dividends: 7 BDCs Paying Up to 19.6% – The Contrary Investing Report

Core Viewpoint - The article discusses the current state of Business Development Companies (BDCs), highlighting a seven-stock BDC portfolio with a yield of 13.5% that is expected to recover as the market stabilizes. Despite concerns over unemployment and economic slowdown, small businesses are reportedly thriving due to AI advancements [1][4]. Economic Overview - Small business profits are increasing, contradicting unemployment reports that suggest a slowdown. The Atlanta Fed's GDPNow estimates growth solidly over 3% [2]. - The current economic environment is characterized as an efficiency boom rather than a recession, driven by small businesses adopting AI to enhance operations [4]. BDC Market Dynamics - The BDC industry is competitive, with more losers than winners. Selecting individual BDCs is preferable to buying a fund that includes underperformers [6]. - Lower interest rates can reduce financing costs for small businesses, increasing demand for loans, which is beneficial for BDCs [7]. Specific BDC Analysis - Sixth Street Specialty Lending (TSLX): Offers a 9.4% yield, focuses on companies with enterprise values between $50 million and $1 billion, and has a growing portfolio. It primarily deals in first-lien debt, with 96% being floating-rate [8][10][11]. - Gladstone Investment (GAIN): Provides a 10.8% yield, focuses on lower-middle-market companies, and has a higher equity exposure than typical BDCs. Its supplemental distributions are variable [13][19][20]. - Crescent Capital BDC (CCAP): Yields 12.3%, has a diverse portfolio of 187 companies, and is significantly affected by Fed rate changes due to its floating-rate debt [21][24]. - Trinity Capital (TRIN): Offers a 13.5% yield, has a growth-focused portfolio of 178 companies, and is diversified in its investment types [25][28]. - FS KKR Capital (FSK): Yields 14.5%, is one of the largest BDCs, and has a diversified portfolio but has faced challenges due to bad loans and a recent dividend cut [29][33]. - Goldman Sachs BDC (GSBD): Yields 14.7%, has faced quality issues leading to a dividend cut, but is becoming more aggressive in deal-making [35][38]. - BlackRock TCP Capital Corp. (TCPC): Offers a high yield of 19.6%, but has struggled with a significant loss since early 2023 and recently cut its dividend [39][42][43].