In this article, we will take a look at some of the best BDC dividend stocks to invest in.
Business Development Companies, or BDCs, play a key role in fueling the growth of smaller and mid-sized businesses across the US. Instead of relying on traditional banking models, they gather funds from investors by issuing shares and then channel that capital into a mix of loans and equity stakes in private firms. The idea is simple — to give these growing companies the financial boost they need to expand and thrive, while offering investors a chance to benefit from their success.
Fitch Ratings isn’t too optimistic about how Business Development Companies will fare in 2025. The firm expects the sector to face some rough patches, citing a crowded lending environment, weaker earnings, and pressure on dividends. On top of that, stubbornly high interest rates and ongoing economic hurdles — including the effects of tariffs on certain portfolio companies — could weigh on asset quality.
Even so, Fitch pointed out that not all BDCs are in the same boat. Those with stable outlooks are generally in a stronger position, thanks to solid asset coverage and access to unsecured funding. Others, however, may not be as lucky. Companies carrying negative outlooks could see further strain on their credit ratings if the quality of their assets continues to slip.
Given this, we will take a look at some of the best dividend stocks in the BDC sector.
Source: unsplash
Our Methodology
For this article, we examined Insider Monkey’s data of nearly 1,000 hedge funds as of Q2 2025. We focused on companies in the BDC sector and selected those with the most hedge fund investors tracked by Insider Monkey during that period. The stocks are ranked according to the number of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
11. PennantPark Investment Corporation (NYSE:PNNT)
Number of Hedge Fund Holders: 2
PennantPark Investment Corporation (NYSE:PNNT) is a business development company that invests in mid-sized firms — the kinds that typically don’t receive much attention from traditional banks. Because of that, it’s often able to secure higher returns on the loans it issues. By the end of June, marking the close of its fiscal third quarter, the company said its debt investments were pulling in an average yield of about 10.4%.
What really sets PennantPark Investment Corporation (NYSE:PNNT) apart, though, is how its portfolio is built. Nearly every loan it makes — roughly 99% — comes with a variable rate. That worked out perfectly when the Federal Reserve started hiking interest rates from early 2022 through mid-2023 to fight inflation. As rates climbed, PennantPark’s returns jumped more than five full percentage points. Now that the Fed has started easing up, it’s doing so at a slow and steady pace, which has allowed the company to keep earning strong yields across its loan book.
PennantPark Investment Corporation (NYSE:PNNT)’s monthly dividend policy is also its strengths. Where a lot of companies offer dividends on a quarterly basis, PNNT pays out every month, which makes it one of the best dividend stocks in the BDC sector. Currently, it offers a monthly dividend of $0.08 per share and has a dividend yield of 14.66%, as of October 5.
10. Gladstone Capital Corporation (NASDAQ:GLAD)
Number of Hedge Fund Holders: 3
Gladstone Capital Corporation (NASDAQ:GLAD) focuses on providing both debt and equity financing to smaller, lower middle-market businesses. The firm puts its money mainly into secured first- and second-lien loans — the kind that come with a strong safety net — and focuses on companies that already generate consistent cash flow. It’s a strategy built around two core goals: keeping income steady and growing the value of its investments over time.
As a BDC, Gladstone Capital Corporation (NASDAQ:GLAD) operates under a special set of rules that shape how it’s structured and how it rewards investors. The management team draws on years of experience and a solid network across industries to find promising deals while keeping risk in check. Much of its attention remains on protecting credit quality and staying anchored in secured lending. Maintaining its BDC status is also key as it brings certain tax perks and, just as important, keeps shareholder returns at the forefront of the firm’s priorities.
Gladstone Capital Corporation (NASDAQ:GLAD)’s history of offering supplemental dividends makes it an appealing option for income investors. On September 15, the company declared an additional dividend of $0.10 per share. Its monthly dividend comes in at $0.165 per share for a dividend yield of 9.27%, as of October 5.
9. BlackRock TCP Capital Corp. (NASDAQ:TCPC)
Number of Hedge Fund Holders: 5
BlackRock TCP Capital Corp. (NASDAQ:TCPC) focuses on providing financing to mid-sized businesses that have solid track records and steady cash flow. Most of its financing comes in the form of senior secured loans, which helps protect its capital while generating steady returns through interest and lending fees. From time to time, it also takes small equity positions when the right opportunity comes along.
BlackRock TCP Capital Corp. (NASDAQ:TCPC)’s dividend history is stable enough to provide consistent income to shareholders. The company has paid uninterrupted dividends for 52 quarters and has a current quarterly payout of $0.25 per share. In addition, the company also offers supplemental dividends at regular intervals. The stock supports a dividend yield of 16.53%, as of October 5.
Lately, BlackRock TCP Capital Corp. (NASDAQ:TCPC) has been focused on cleaning up its portfolio and keeping risk in check. That means reducing exposure to loans that aren’t performing well, tightening credit standards, and shoring up its capital structure. The firm’s advisor, Tennenbaum Capital Partners, which is part of BlackRock, brings years of experience and plays an active role in fine-tuning investments. For BlackRock TCP Capital, the priorities remain the same: keep credit quality high, manage risk carefully, and stay compliant as a Business Development Company to continue rewarding shareholders.
8. Barings BDC, Inc. (NYSE:BBDC)
Number of Hedge Fund Holders: 8
An American publicly-traded and externally managed business development company, Barings BDC, Inc. (NYSE:BBDC) is one of the best dividend stocks in the BDC sector. The company has never missed a dividend since 2007, and currently, its quarterly dividend comes in at $0.26 per share. Moreover, with the announcement of its regular payout, the company announced a supplemental dividend of $0.05 per share in August. As of October 5, the stock supports a dividend yield of 12.08%.
Barings BDC, Inc. (NYSE:BBDC) reported strong earnings in the second quarter of 2025, with revenues of $74.4 million, which, though, fell slightly by 0.6% on a YoY basis, beat analysts’ estimates by $7.98 million.
In the first half of 2025, Barings BDC, Inc. (NYSE:BBDC)’s net investment income per share was strong enough to fully cover its regular dividends so far this year. Management credited its disciplined approach for keeping credit quality solid, noting that loans on non-accrual status made up only about 0.5% of the portfolio by fair value.
During the second quarter, roughly $200 million was deployed across both new and existing positions. This activity fits with the company’s ongoing plan to put capital into quality, income-producing investments that meet its selective standards. With more than $322 million in available liquidity and the broader Barings network behind it, the firm believes it remains well placed to deliver attractive, risk-adjusted returns to shareholders.
In the three months ending June 30, 2025, Barings BDC, Inc. (NYSE:BBDC) saw 19 new investments totaling about $137.3 million, along with another $61.7 million added to existing holdings.
7. Trinity Capital Inc. (NASDAQ:TRIN)
Number of Hedge Fund Holders: 9
Trinity Capital Inc. (NASDAQ:TRIN) focuses on helping growing companies that already have backing from venture capital firms. The company mostly offers venture debt and equipment financing, giving startups in tech, life sciences, and other innovative fields the funding they need to keep expanding.
In recent months, Trinity Capital Inc. (NASDAQ: TRIN) has been expanding its portfolio while maintaining stringent lending standards. It’s also trying to spread investments across different regions and industries to avoid putting too much weight in any one area. A lot of its success comes down to experience — knowing how to spot a solid opportunity, manage risk carefully, and build relationships that last beyond a single deal.
Trinity Capital Inc. (NASDAQ:TRIN)’s shareholders have been enjoying consistent dividends for the past 23 years, which makes it one of the best dividend stocks in the BDC sector. The company currently offers a quarterly dividend of $0.51 per share for a dividend yield of 13.39%, as of October 5.
6. Prospect Capital Corporation (NASDAQ:PSEC)
Number of Hedge Fund Holders: 11
Prospect Capital Corporation (NASDAQ:PSEC) is a business development company that lends money to mid-sized firms in the United States. Most of what it does involves senior and first lien loans, along with some second lien lending. The company also takes smaller equity positions when there’s room for growth, which can add a bit of upside on top of the regular interest income it earns.
Lately, Prospect Capital Corporation (NASDAQ:PSEC)’s focus has been on keeping risk under control. Prospect has been moving more of its capital into first lien senior secured loans and cutting back on complex, higher-risk investments. It’s also been trying to manage its funding costs more efficiently. The idea is to build a portfolio that generates steady income while holding on to the tax benefits that come with being a BDC. The leadership team has been around for a long time and owns a decent chunk of the company, which helps keep their interests in line with shareholders.
Prospect Capital Corporation (NASDAQ:PSEC) offers payouts on a monthly basis to shareholders, with its current dividend coming in at $0.045 per share. As of October 5, the stock has a dividend yield of 19.42%.
5. Golub Capital BDC, Inc. (NASDAQ:GBDC)
Number of Hedge Fund Holders: 13
Golub Capital BDC, Inc. (NASDAQ:GBDC) works with mid-sized US companies that need tailored financing to fund their growth. Most of its clients are backed by private equity firms, and the company focuses mainly on senior secured loans, one-stop lending structures, and occasional equity investments when the fit is right.
Golub Capital BDC, Inc. (NASDAQ:GBDC)’s success comes down to a few things: steady access to solid deal opportunities, disciplined underwriting, and long-term relationships across the private equity world. Being part of the broader Golub Capital network gives it an advantage when it comes to finding and structuring deals. Management also keeps a close eye on compliance to maintain its status as both a business development company and a regulated investment company — an arrangement that helps protect its tax benefits and supports shareholder returns.
Golub Capital BDC, Inc. (NASDAQ:GBDC) has been rewarding investors with regular dividends since 2010. During this period, the company has raised its payouts multiple times and has also offered supplemental dividends. It currently pays a quarterly dividend of $0.39 per share and has a dividend yield of 11.57%, as recorded on October 5.
4. Main Street Capital Corporation (NYSE:MAIN)
Number of Hedge Fund Holders: 13
Main Street Capital Corporation (NYSE:MAIN) is a US lender that works mostly with smaller and mid-sized businesses. It provides customized debt and equity financing to companies that need capital to grow but aren’t large enough to tap traditional funding sources.
Most of Main Street Capital Corporation (NYSE:MAIN)’s earnings come from the interest it collects on loans, while its equity stakes bring in extra dividend income. As a business development company, it has to return at least 90% of its taxable income to shareholders, and it does that through steady monthly dividends. The company has built a strong track record on that front — it’s never cut or suspended its payout, and the monthly dividend has more than doubled since 2007. Over the past year, the company has raised its dividend twice, adding up to a 4.1% increase.
From time to time, Main Street Capital Corporation (NYSE:MAIN) also pays out special or supplemental dividends, usually once a quarter. These help it stay compliant with payout rules and give investors a little something extra. While these bonus payments aren’t guaranteed every quarter, Main Street has managed to issue them consistently since the end of 2021. The company’s monthly dividend comes in at $0.255 per share for a dividend yield of 4.86%, as of October 5.
3. Hercules Capital, Inc. (NYSE:HTGC)
Number of Hedge Fund Holders: 18
Hercules Capital, Inc. (NYSE:HTGC) is a financing firm based in California that lends mainly to fast-growing companies backed by venture capital or big institutional investors. Most of what it does involves senior secured loans across a range of industries, helping young businesses get the cash they need to scale.
Over the years, especially since 2018, Hercules Capital, Inc. (NYSE:HTGC) has steadily grown its net investment income. That says a lot about how well the team has managed both its loan book and its overall risk. As earnings have climbed, the company’s also made a point of passing that along to investors by raising its dividend on a regular basis.
What really sets Hercules Capital, Inc. (NYSE:HTGC) apart is how it handles its deals. The firm can tap into deep pools of capital, which gives it an edge, but it’s careful — it structures its loans with solid covenants to keep things in check. On top of that, it keeps close ties with the venture capital firms backing its borrowers. That kind of network often turns into repeat business, whether through refinancing deals or new introductions that come from those same VC connections.
Hercules Capital, Inc. (NYSE:HTGC) has paid regular dividends to shareholders for 79 consecutive quarters, which makes it one of the best dividend stocks to invest in. Currently, it pays a quarterly dividend of $0.40 per share for a dividend yield of 10.27%, as of October 5. In addition, the company also announced a $0.07 per share supplemental dividend.
2. Capital Southwest Corporation (NASDAQ:CSWC)
Number of Hedge Fund Holders: 18
Capital Southwest Corporation (NASDAQ:CSWC) is based in Texas and focuses on lending to smaller, growing businesses that sit in the lower middle market. It’s not a widely talked-about stock, but over the years, the company has quietly built a record of steady financial growth and solid management discipline.
In the first quarter of its 2026 fiscal year, Capital Southwest Corporation (NASDAQ:CSWC) highlighted that its balance sheet kept getting stronger, while its overall risk levels continued to drop. The company also mentioned that deal activity had been picking up noticeably, and management expects to stay active on the lending front through the September quarter.
In a move meant to make its payout policy more appealing to investors, Capital Southwest Corporation (NASDAQ:CSWC) switched its dividend from quarterly to monthly payments starting in July. By late August, it had declared a monthly dividend of $0.1934 per share, along with a quarterly supplemental payout of $0.06. As of October 5, the stock’s dividend yield stood at around 10.3%.
During the same period, Capital Southwest Corporation (NASDAQ:CSWC) brought in roughly $42 million through its Equity ATM Program. Earlier in the year, in April 2025, it expanded its Corporate Credit Facility by another $25 million, bringing the total to $510 million. It also secured a second SBIC license from the US Small Business Administration— steps that give it more flexibility and room to grow its lending business.
1. Ares Capital Corporation (NASDAQ:ARCC)
Number of Hedge Fund Holders: 22
Ares Capital Corporation (NASDAQ:ARCC) is set up as a business development company, which basically means it steps in where traditional lenders stop lending. These are businesses that might be too small or too risky for banks, so Ares fills that gap — and charges a higher rate for doing so. Loans in this space often come with yields around 10% or more, simply because the risk is higher. If these companies could borrow cheaply from banks or the open market, they probably wouldn’t need a BDC.
By the second quarter of 2025, Ares Capital Corporation (NASDAQ:ARCC) said its loan portfolio was earning an average yield of about 10.9%. Around 70% of those loans have floating rates, so the returns move with interest rate changes. Roughly 60% of its portfolio is made up of first-lien debt, which gives Ares first claim on assets if a borrower runs into trouble. That adds some cushion, but at the end of the day, lending to smaller private firms will always carry a fair bit of risk.
Ares Capital Corporation (NASDAQ:ARCC) is also a strong dividend payer with a quarterly payout of $0.48 per share. As of October 5, the stock has a dividend yield of 9.53%.
While we acknowledge the potential of ARCC to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than ARCC and that has 100x upside potential, check out our report about this cheapest AI stock.
READ NEXT: Dividend Champions List: Top 15 Stocks to Buy and 11 Best Affordable Dividend Stocks to Buy Now.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
