Small PE Companies: High Yield Exposure to Smaller Companies: Blackrock Kelso Capital Corp. (BKCC)

There is a booming market for investments in smaller private companies which are very lucrative.  There are numerous publicly traded companies currently focused on finding small companies to invest in.  These companies’ investments can yield anywhere from 8% to 15% per year.  This return is often paid out to shareholders in the form of large dividends.  The large dividends can result in a substantial total return over long periods of time.

I stumbled upon Blackrock Kelso Capital Corp. (NASDAQ:BKCC), a relatively small business development company that is essentially a well-run private equity firm.  The market cap is only $772 million.  The stock currently has a yield of 10%.  The high yield piqued my interest and I quickly discovered that they have numerous competitors who also yield bountiful dividends.

Other smaller PE companies are Prospect Capital Corporation (NASDAQ:PSEC), Triangle Capital Corporation (NYSE:TCAP), Gladstone Investment Corporation (NASDAQ:GAIN), and Apollo Investment Corp. (NASDAQ:AINV).  All of these companies pay dividends over 8%.

pays a monthly dividend of $0.11 for a yield of roughly 11%.  The company is set to report earnings on Feb. 7.  Since their last quarter disappointed the market, it would be safer to hold off on investing in the company until after earnings.  That way investors can verify the quarter was a 1-time event.

Triangle Capital pays a quarterly dividend for a 8% yield.  The company increased their dividend as recently as November 2012.  The stock has had a very strong run over the past several years.  It is now trading at $27 and was trading around the $10 level in 2008 and 2009.  The stock is now well above net asset value, of $15.33.  The company is broadly diversified, with investments in 78 different companies.  Due to the low yield and relatively volatile stock price, relative to other BDCs, this doesn’t fit the type of investment I look for in BDCs.

Gladstone Investment is currently trading below net asset value, of $8.65 per share.  The company pays a monthly dividend of $0.05, for a yield of just over 8%.  Their investments are relatively concentrated, with investments in only 20 companies.

Apollo Investment pays a quarterly dividend yielding roughly 9%.  The company is scheduled to report earnings on Feb. 6.  The company is trading just above the last reported net asset value of $8.46.  The company has a broad investment base, with investments in 69 companies.  Given the small following of the stock, investors should hold off until the company reports earnings.  Once earnings are reported, investors can verify they are comfortable with the company investments and management.