In the 1980s, the Federal government created a venture-like investment vehicle known as a “business development company”(BDC). Congress designed BDCs to help emerging U.S. businesses raise funds to fuel job growth. BDCs provide capital and supply financing to companies through a wide variety of mechanisms, including equity, debt and hybrid financial instruments. The majority of BDC income is generated by loans to client companies. Some loans are secured, and some loans have less secure backing. This is something to check and keep in mind if we are moving into a recessionary period.
BDC’s by legal definition must pay 90% of taxable income to it shareholders as a dividend.
Since this is a pass-through of income, 10K’s will likely be issued by the companies to shareholders for their tax returns. Consult your tax attorney for your specific situation’s application.
Please note that since distributions are based on the originators income, dividends will vary with economic times. In difficult times like the Great Recession of 2008, many BDCs, reduced or stopped paying dividends to adapt to the environment. At the time. Owning shares of a BDC, is no different than being an owner of your own business. We adjust to the times.
Below, we have listed Business Development Companies (BDC) that are rated Buy or Strong Buy as screened by the Quant System created by Seeking Alpha. Price momentum, up or down, is factored into the Quantitative methodology. Therefore, a falling stock price “could” result in a down grade from buy to a hold or sell rating. In addition, we have also listed Wall Street Analysts rating for these companies. It helps to have a contrasting or different opinion.
The number after the Buy or Strong Buy is the 0 to 5 numerical rating given by the Quant System used.
Suggested ways to view this list might be:
- Own a package so you don’t get attachment to any company at this time. In time, you might know the company better and this might change. Pick five names or even ten names to invest in, with equal dollars into each. You might
- Select the highest dividend rates from the Forward (FWD) Yield column.
- Cross reference this with Earnings Per Share (EPS) FWD. Earnings are where the dividend comes from so don’t buy falling earnings / falling dividends. Careful looking might disclose a one-time event, however some of you might not want to dig that deep.
- Rising revenue suggest the possibility of rising earnings and therefore rising dividends.
- Or you might just select the top five or top ten based on the ratings system and keep it simple.
This is a probability game so get as many probabilities on your side of the table as you can and adjust to the times it does not work. That is called risk management so understand yourself enough to know in advance what you are comfortable with and what you are not comfortable with.
Hope this helps. Best always – Tom
#bdc #businessdevelopmentcompany #income #dividends #incomestocks
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Written October 25, 2023, by Tom Linzmeier, for Tom’s LOTM Blog at https://lotm.substack.com/.
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