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Big Dividend BDCs: Ranking The Best And Worst

It’s been a choppy year so far for big-dividend Business Development Companies (BDCs). This has created some attractive buying opportunities as the market moved from January/February distress, to a near-infatuation with yield in the months that followed, and then a more recent pullback since the beginning of September.

As a follow-on to our recent article “Big Dividend REITs: Ranking the Best and Worst,” this article provides a ranking of the best and worst performing BDCs this year, and then details seven specific guidelines that we believe are worth considering before making an investment, especially given our current market conditions.

For starters, the following table ranks the best and worst performing BDC this year by total return (dividends plus price appreciation).


We believe the following seven guidelines are worth considering before investing, especially given our current market conditions.

The recent pullback has created opportunity.

As the previous chart shows, BDCs, as measured by the ETRACS Business Development Company ETN (BDCS), have declined 5.8% since the start of September, whereas the S&P 500 (SPY) has pulled back only 3.6%. This decline comes as investors fear the approaching US Federal Reserve interest rate hike will slow growth for many of the middle market companies in which BDCs invest (these companies required debt to grow, and that debt is becoming more expensive thereby making growth more challenging). However, we believe much of that fear is already backed into prices, and the pullback has created a more attractive entry point for long-term income-focused investors to pick up attractive yield. For example, we like Ares Capital Corporation (NASDAQ:ARCC), and you can read our views on that BDC here: Ares Capital: Big Dividend, 3 Big Risks.

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