10 BDC Dividend Stocks for Increased Income

Published on September 10, 2021 at 9:49 am by Fatima Farooq in Hedge Funds, News

In this article, we will be taking a look at 10 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.

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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.

5. Trinity Capital Inc. (NASDAQ: TRIN)

Number of Hedge Fund Holders: 13
Dividend Yield: 6.9%

Trinity Capital Inc. (NASDAQ: TRIN), a business development company and venture capital firm, works with venture debt to growth-stage companies that require loans and/or equipment financing. The company ranks 5th on our list of BDC dividend stocks for increased income.

This May, Ladenburg upgraded shares of Trinity Capital Inc. (NASDAQ: TRIN) from Neutral to Buy, with a $17 price target.

In the second quarter of 2021, Trinity Capital Inc. (NASDAQ: TRIN) had an EPS of $0.38, beating estimates by $0.06. The company’s revenue was $19.48 million, beating estimates by $1.7 million. Trinity Capital Inc. (NASDAQ: TRIN) has gained 11.72% in the past 6 months and 8% year to date.

By the end of the second quarter of 2021, 13 hedge funds out of the 873 tracked by Insider Monkey held stakes in Trinity Capital Inc. (NASDAQ: TRIN) worth roughly $23.2 million. This is compared to 12 hedge funds in the previous quarter with a total stake value of approximately $24.2 million.

4. Barings BDC, Inc. (NYSE: BBDC)

Number of Hedge Fund Holders: 15
Dividend Yield: 7.1%

Barings BDC, Inc. (NYSE: BBDC), a publicly traded and externally managed investment company working as a business development company, is 4th on our list of BDC dividend stocks for increased income. The company is based in Charlotte, NC.

This June, BofA double-upgraded shares of Barings BDC, Inc. (NYSE: BBDC) from Underperform to Buy, with an $11.25 price target.

In the second quarter of 2021, Barings BDC, Inc. (NYSE: BBDC) had an NII of $0.22, in line with estimates. The company’s TII was $33.15 million, up 105.42% year over year and beating estimates by $3.12 million. Barings BDC, Inc. (NYSE: BBDC) has gained 8.67% in the past 6 months and 20.55% year to date.

By the end of the second quarter of 2021, 15 hedge funds out of the 873 tracked by Insider Monkey held stakes in Barings BDC, Inc. (NYSE: BBDC) worth roughly $63 million. This is compared to 14 hedge funds in the previous quarter with a total stake value of approximately $60.3 million.

3. PennantPark Investment Corporation (NASDAQ: PNNT)

Number of Hedge Fund Holders: 7
Dividend Yield: 7.3%

PennantPark Investment Corporation (NASDAQ: PNNT) works with direct and mezzanine investments in middle market companies, and ranks 3rd on our list of BDC dividend stocks for increased income. The company is based in New York.

As of this July, Oppenheimer holds a Perform rating on shares of PennantPark Investment Corporation (NASDAQ: PNNT), alongside a $7.50 price target.

In the fiscal third quarter of 2021, PennantPark Investment Corporation (NASDAQ: PNNT) had an NII of $0.48, beating estimates by $0.33. The company’s TII was $20.49 million, also beating estimates by $0.33 million. PennantPark Investment Corporation (NASDAQ: PNNT) has gained 13.49% in the past 6 months and 46.10% year to date.

By the end of the second quarter of 2021, 7 hedge funds out of the 873 tracked by Insider Monkey held stakes in PennantPark Investment Corporation (NASDAQ: PNNT) worth roughly $25 million. This is compared to 8 hedge funds in the previous quarter with a total stake value of approximately $22 million.

2. Saratoga Investment Corp. (NYSE: SAR)

Number of Hedge Fund Holders: 2
Dividend Yield: 7.7%

Saratoga Investment Corp. (NYSE: SAR) specializes in leveraged and management buyouts, acquisition financings, growth financings, and recapitalizations, among other related areas. The company ranks 2nd on our list of BDC dividend stocks for increased income.

Maxim raised its price target on shares of Saratoga Investment Corp. (NYSE: SAR) this July, from $29 to $31. The firm also holds a Buy rating on the stock.

In the fiscal first quarter of 2022, Saratoga Investment Corp. (NYSE: SAR) had an NII of $0.23, missing estimates by $0.27. The company’s TII was $16.82 million, up 26.46% year over year and beating estimates by $1.56 million, however. Saratoga Investment Corp. (NYSE: SAR) has gained 26.88% in the past 6 months and 40.72% year to date.

By the end of the second quarter of 2021, 2 hedge funds out of the 873 tracked by Insider Monkey held stakes in Saratoga Investment Corp. (NYSE: SAR) worth roughly $1.3 million. This is compared to 2 hedge funds in the previous quarter with a total stake value of approximately $3.3 million.

1. BlackRock Capital Investment Corporation (NASDAQ: BKCC)

Number of Hedge Fund Holders: 10
Dividend Yield: 9.5%

BlackRock Capital Investment Corporation (NASDAQ: BKCC) was initially operating under the name of BlackRock Kelso Capital Corporation, and is a business development company based in New York. The company ranks 1st on our list of BDC dividend stocks for increased income and invests in all industries, specializing in investing in middle-market companies.

In the second quarter of 2021, BlackRock Capital Investment Corporation (NASDAQ: BKCC) had an NII of $0.07, in line with estimates. The company’s TII was $10.86 million, beating estimates by $0.86 million. BlackRock Capital Investment Corporation (NASDAQ: BKCC) has gained 20.11% in the past 6 months and 57.74% year to date.

By the end of the second quarter of 2021, 10 hedge funds out of the 873 tracked by Insider Monkey held stakes in BlackRock Capital Investment Corporation (NASDAQ: BKCC) worth roughly $11.2 million. This is compared to 6 hedge funds in the previous quarter with a total stake value of approximately $8 million.

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