10 Best BDC Stocks To Buy

In this article, we discuss 10 best BDC stocks to buy now.

A Business Development Company, or BDC, is a unique investment option that combines features of both publicly traded companies and closed-end investment vehicles. BDCs usually invest in small- and medium-sized companies as well as distressed corporations to help them grow in the initial stages of their development.

BDCs are gaining traction among investors this year as these securities usually have higher dividend yields than other asset classes. These higher yields are the results of a 1.5% base management fee and an incentive fee of 17.5%. BDCs can still collect incentive fees even if their portfolio values are declining. Moreover, these companies do not pay taxes at the corporate level and distribute 90% of their taxable income in dividends and other shareholder returns.

Over the last two years, BDC assets have doubled to about $260 billion, as reported by Barron’s. The report also mentioned that growth in loan portfolios, higher interest rates, and the financial performance of the borrowers have lifted yields on executives’ portfolios by about four percentage points this year, to about 10%.

According to a report published by Guggenheim, BDCs have the potential to offer a stable income to shareholders than other investments due to higher interest rates on loans. The report also showed that BDCs have offered higher yields to investors over the years, compared with MLPs, US 10-Year Treasury, and the S&P 500. This year’s market situation has highlighted the importance of dividend stocks for generating regular income. Companies like Caterpillar Inc. (NYSE:CAT), Exxon Mobil Corporation (NYSE:XOM), and AbbVie Inc. (NYSE:ABBV) are steadily gaining importance among investors due to their solid credentials and healthy yields. In this article, we will take a look at some of the best BDC stocks to buy.

Photo by Karolina Grabowska: https://www.pexels.com/photo/hands-holding-us-dollar-bills-4968630/

Our Methodology:

For this list, we selected stocks that belong to the business development sector. We analyzed these companies through their balance sheets, dividend policies, and overall financials. The stocks are ranked according to hedge fund positions as tracked by Insider Monkey in Q3 2022.

10 Best BDC Stocks To Buy

10. BlackRock Capital Investment Corporation (NASDAQ:BKCC)

Number of Hedge Fund Holders: 5

BlackRock Capital Investment Corporation (NASDAQ:BKCC) is an American company that provides middle-market companies with flexible financing solutions. In the third quarter of 2022, the company reported a total investment income of over $16 million, which showed a 28.1% growth from the same period last year. At the end of September, the company had roughly $30 million available in cash and cash equivalents and over $95 million in the credit facility.

On November 3, BlackRock Capital Investment Corporation (NASDAQ:BKCC) declared a quarterly dividend of $0.10 per share, which fell in line with its previous dividend. As of December 15, the stock has a dividend yield of 11.20%. The company’s consistent dividend payments make it a reliable stock alongside some of the best dividend stocks like Caterpillar Inc. (NYSE:CAT), Exxon Mobil Corporation (NYSE:XOM), and AbbVie Inc. (NYSE:ABBV).

At the end of Q3 2022, 5 hedge funds tracked by Insider Monkey owned stakes in BlackRock Capital Investment Corporation (NASDAQ:BKCC), the same as in the previous quarter. The collective value of these stakes is over $2.4 million. Among these hedge funds, Two Sigma Advisors owned the largest stake in the company, worth over $1.1 million.

9. Gladstone Capital Corporation (NASDAQ:GLAD)

Number of Hedge Fund Holders: 5

Gladstone Capital Corporation (NASDAQ:GLAD) is a Virginia-based business development company that provides financial solutions to lower-middle market companies worldwide. The company is one of the best stocks on our list as it pays monthly dividends to shareholders and has raised its payout twice after recovering from the losses of the pandemic. It currently pays a monthly dividend of $0.07 per share and has a dividend yield of 8.60%, as recorded on December 15.

In fiscal Q4 2022, Gladstone Capital Corporation (NASDAQ:GLAD) reported a net investment income of $0.22, which beat estimates by $0.01. The company’s total investment income came in at nearly $16 million, up 11% from the same period last year. At the end of the quarter, it had over $250 million available in the credit facility.

As of the close of Q3 2022, 5 hedge funds tracked by Insider Monkey reported owning stakes in Gladstone Capital Corporation (NASDAQ:GLAD), down from 7 in the previous quarter. The collective value of these stakes is over $3.7 million. Among these hedge funds, Two Sigma Advisors was the company’s leading stakeholder in Q3.

8. Newtek Business Services Corp. (NASDAQ:NEWT)

Number of Hedge Fund Holders: 7

Newtek Business Services Corp. (NASDAQ:NEWT) is a Texas-based company that provides business solutions in lending, technology, and payments. Raymond James upgraded the stock to Market Perform in August, appreciating the stock’s quarterly earnings. The firm also presented a positive outlook on the company’s earnings in the upcoming quarter.

In the third quarter of 2022, Newtek Business Services Corp. (NASDAQ:NEWT) reported a net investment income of $23.6 million, which showed a 90.3% growth from the same period last year. At the end of September, the company had over $7.3 million in available cash, up from $2.4 million nine months ago. Its total assets amounted to over $1 billion.

On November 18, Newtek Business Services Corp. (NASDAQ:NEWT) declared a 7.7% hike in its quarterly dividend to $0.70 per share. The company is one of the best stocks on our list as it has raised its payouts at a CAGR of 14.1% in the past five years. The stock’s dividend yield on December 15 came in at 14.66%.

At the end of Q3 2022, 7 hedge funds tracked by Insider Monkey reported owning stakes in Newtek Business Services Corp. (NASDAQ:NEWT), up from 5 in the previous quarter. The collective value of these stakes is over $18.4 million. With stakes worth over $7.2 million, Royce & Associates was the company’s leading stakeholder in Q3.

7. Main Street Capital Corporation (NYSE:MAIN)

Number of Hedge Fund Holders: 8

Main Street Capital Corporation (NYSE:MAIN) is an American principal investment firm that provides long-term debt and equity capital to lower-middle market companies. In December, B. Riley initiated its coverage on the stock with a Buy rating and a $42 price target, highlighting the company’s attractive balance sheet and dividend profiles.

In the third quarter of 2022, Main Street Capital Corporation (NYSE:MAIN) reported a total investment income of $98.3 million, which showed a 28% growth from the same period last year. The company’s distributable net investment income came in at $65.8 million.

On November 2, Main Street Capital Corporation (NYSE:MAIN) declared a monthly dividend of $0.225 per share, up 2.3% from its previous dividend. The company also announced a supplemental dividend of $0.10 per share. Its strong cash position and solid dividend policy place it as one of the best stocks on our list. As of December 15, the stock has a dividend yield of 7.27%.

As of the end of September 2022, 8 hedge funds tracked by Insider Monkey owned stakes in Main Street Capital Corporation (NYSE:MAIN), up from 5 in the previous quarter. The collective value of these stakes is over $20.7 million. McKinley Capital Management was the company’s leading stakeholder in Q3.

6. Trinity Capital Inc. (NASDAQ:TRIN)

Number of Hedge Fund Holders: 8

Trinity Capital Inc. (NASDAQ:TRIN) is a leading provider of venture debt financing for high-growth venture capital-backed startups. In the third quarter of 2022, the company reported a total investment income of $38.7 million, which saw a 77.6% growth from the same period last year. Its net investment income per share came in at $0.53, beating estimates by $0.01. At the end of September, the company had $246.6 million in cash and cash equivalents.

Trinity Capital Inc. (NASDAQ:TRIN) is one of the best stocks on our list as the company raised its dividends five times since the inception of its dividend policy in November 2020. It currently pays a quarterly dividend of $0.45 per share, with a dividend yield of 16.84%, as of December 15.

In November, B. Riley maintained a Buy rating on Trinity Capital Inc. (NASDAQ:TRIN) with a $12 price target. The firm highlighted the company’s credit trends and its above-average dividend yield.

In addition to some of the best stocks like Caterpillar Inc. (NYSE:CAT), Exxon Mobil Corporation (NYSE:XOM), and AbbVie Inc. (NYSE:ABBV), investors are also paying attention to Trinity Capital Inc. (NASDAQ:TRIN) this year due to the company’s consistent dividend payments.

At the end of Q3 2022, 9 hedge funds tracked by Insider Monkey owned stakes in Trinity Capital Inc. (NASDAQ:TRIN), up from 8 in the previous quarter. The collective value of these stakes is over $21.7 million.

5. Capital Southwest Corporation (NASDAQ:CSWC)

Number of Hedge Fund Holders: 9

Capital Southwest Corporation (NASDAQ:CSWC) is an internally-managed business development company that is an active capital provider to middle-market companies in the US. The company is based in Texas. In fiscal Q2 2023, the company reported a total investment income of $26.8 million, which showed a 32% growth from the prior-year period. The company’s total investment portfolio amounted to over $1.1 billion and had $30.2 million available in cash and cash equivalents. Its strong cash position makes it one of the best stocks on our list.

Capital Southwest Corporation (NASDAQ:CSWC) currently pays a quarterly dividend of $0.52 per share and has a dividend yield of 11.98%, as of December 15. On October 27, the company also announced a supplemental dividend of $0.05 per share. It has been raising its dividends consistently for the past two years.

In December, B. Riley upgraded Capital Southwest Corporation (NASDAQ:CSWC) to Buy with a $20 price target, highlighting growth across the sector due to high-interest rates.

As of the close of Q3 2022, 9 hedge funds tracked by Insider Monkey reported owning stakes in Capital Southwest Corporation (NASDAQ:CSWC), the same as in the previous quarter. These stakes have a total value of over $26 million.

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

Number of Hedge Fund Holders: 10

Barings BDC, Inc. (NYSE:BBDC) is an externally-managed business development company that makes debt investments in middle-market companies. The company started paying dividends in 2018 and has raised its payouts multiple times since then. It currently pays a quarterly dividend of $0.24 per share and has a dividend yield of 11.35%, as of December 15.

In Q3 2022, Barings BDC, Inc. (NYSE:BBDC) reported a 61% year-over-year growth in its total investment income of $56.3 million. At the end of September, the company had cash and foreign currencies of $137.3 million. In the first nine months of the year, it generated over $109.6 million in operating cash flow.

As of the close of Q3 2022, 10 hedge funds in Insider Monkey’s database owned stakes in Barings BDC, Inc. (NYSE:BBDC), compared with 11 in the previous quarter. The collective value of these stakes is over $35.5 million.

3. PennantPark Investment Corporation (NYSE:PNNT)

Number of Hedge Fund Holders: 11

PennantPark Investment Corporation (NYSE:PNNT) is a New York-based company that provides exposure to middle-market credit. On November 17, the company announced a 10% hike in its quarterly dividend to $0.165 per share. This was the company’s second consecutive quarterly dividend growth. As of December 15, the stock has a dividend yield of 11.27%.

In fiscal Q4 2022, PennantPark Investment Corporation (NYSE:PNNT) reported a total investment income of $28.9 million, which saw a 25% growth from the same period last year. The company’s investment portfolio was worth over $1.2 billion and had over $585 million in net assets.

PennantPark Investment Corporation (NYSE:PNNT) was a part of 11 hedge fund portfolios in Q3 2022, the same as in the previous quarter, as per Insider Monkey’s data. The stakes owned by these hedge funds have a total value of over $32.2 million.

2. Owl Rock Capital Corporation (NYSE:ORCC)

Number of Hedge Fund Holders: 16

Owl Rock Capital Corporation (NYSE:ORCC) is an American specialty finance and business development company. On November 2, the company announced a 6.5% increase in its quarterly dividend to $0.33 per share. The stock’s dividend yield on December 15 came in at 10.87%.

In Q3 2022, Owl Rock Capital Corporation (NYSE:ORCC) reported a total investment income of $314 million, up 16.7% from the prior-year period. At the end of September, the company had over $500 million in cash and cash equivalents.

As of the close of Q3 2022, 16 hedge funds tracked by Insider Monkey owned stakes in Owl Rock Capital Corporation (NYSE:ORCC), up from 15 in the previous quarter. The collective value of these stakes is over $52 million.

1. Ares Management Corporation (NYSE:ARES)

Number of Hedge Fund Holders: 29

Ares Management Corporation (NYSE:ARES) is an American business development company that operates in credit, private equity, and real estate markets. The company is one of the best stocks on our list as it has raised its dividends consistently for the past five years. It currently offers a quarterly dividend of $0.61 per share and has a dividend yield of 3.49%, as of December 15.

At the end of Q3 2022, 29 hedge funds tracked by Insider Monkey owned stakes in Ares Management Corporation (NYSE:ARES), compared with 30 in the previous quarter. These stakes are collectively worth over $650.4 million.

Vulcan Value Partners mentioned Ares Management Corporation (NYSE:ARES) in its Q3 2022 investor letter. Here is what the firm has to say:

“Ares Management Corporation (NYSE:ARES), is a global, diversified alternative asset manager with a focus on credit and debt funds. Among alternative asset managers, Ares has a leading market share in credit products. These credit products generate fee-related revenue, which we believe translates to stable earnings power. Ares is benefiting from increasing investor demand for private credit assets. According to industry data, the gap between current and target allocations for institutions is wider for private credit than for private equity, implying that private credit has substantial opportunity for growth. Ares has generated strong historical returns in private credit and demand from private equity sponsors, who are Ares’s primary customers, for private credit funding has increased. This has resulted in market share gains for private credit against the banks and public markets, and we believe that trend will continue. We think that scale and relationships are Ares’ most important competitive advantages and, to the extent these advantages lead to strong returns, this should lead to continued growth in AUM. The alternative asset management space is very competitive, but we believe that Ares is well positioned.”

You can also take a look at 12 Defensive Healthcare Dividend Stocks To Buy and 10 Best December Dividend Stocks to Buy

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Disclosure. None. 10 Best BDC Stocks To Buy is originally published on Insider Monkey.