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The 20 Highest Yielding BDCs | Yields Up To 17.8%


Updated on July 29th, 2024 by Bob Ciura

Business Development Companies, otherwise known as BDCs, are highly popular among income investors. BDCs widely have high dividend yields of 5% or higher.

This makes BDCs very appealing for income investors such as retirees. With this in mind, we’ve created a list of BDCs.

You can download your free copy of our full BDC list, along with relevant financial metrics such as P/E ratios and dividend payout ratios, by clicking on the link below:

 

Click here to instantly download your free spreadsheet of all BDC Stocks now, along with important investing metrics.

We typically rank stocks based on their five-year expected annual returns, as stated in the Sure Analysis Research Database.

But for investors primarily interested in income, it is also useful to rank BDCs according to their dividend yields. This article will rank the 20 highest-yielding BDCs in our coverage universe.

Table of Contents

Why Invest In BDCs?

Business Development Companies are closed-end investment firms. Their business model involves making debt and/or equity investments in other companies, typically small or mid-size businesses. These target companies may not have access to traditional means of raising capital, which makes them suitable partners for a BDC. BDCs invest in a variety of companies, including turnarounds, developing, or distressed companies.

BDCs are registered under the Investment Company Act of 1940. As they are publicly-traded, BDCs must also be registered with the Securities and Exchange Commission. To qualify as a BDC, the firm must invest at least 70% of its assets in private or publicly-held companies with market capitalizations of $250 million or below.

Another unique characteristic of BDCs that investors should know before buying is taxation. BDC dividends are typically not “qualified dividends” for tax purposes, which is generally a more favorable tax rate. Instead, BDC distributions are taxable at the investor’s ordinary income rates, while the BDC’s capital gains and qualified dividend income is taxed at capital gains rates.

The following section ranks the 20 highest-yielding BDCs in the U.S. that are covered in the Sure Analysis Research Database. The stocks are ranked in order of lowest dividend yield to highest.

High Yield BDC #20: Gladstone Capital (GLAD)

Gladstone Capital is a business development company, or BDC, that primarily invests in small and medium businesses. These investments are made via a variety of equity (10% of portfolio) and debt instruments (90% of portfolio), generally with very high yields.

Loan size is typically in the $7 million to $30 million range and has terms up to seven years.

Source: Investor Presentation

Gladstone posted first quarter earnings on May 1st, 2024. Total investment income increased $0.8 million, or about 3.3%, from the year-ago period.

The gain was driven by a $0.7 million increase in interest income, which itself was driven by a 3.5% increase in the weighted average principal balance of interest-bearing investments. Net investment income came to $0.25 per share for the quarter.

Click here to download our most recent Sure Analysis report on GLAD (preview of page 1 of 3 shown below):

High Yield BDC #19: Sixth Street Specialty Lending (TSLX)

Sixth Street Specialty Lending is a specialty finance company focused on providing flexible, fully committed financing solutions to middle-market companies principally located in the US. The fund provides primarily first-lien senior secured loans, mezzanine debt, non-control structured equity and common equity.

Management aims to co-invest with other firms to maximize the potential for organic growth, acquisitions, market or product expansion, restructuring initiatives, recapitalizations and refinancing.

On May 1st, 2024, Sixth Street Specialty Lending reported its Q1 results for the period ending March 31st, 2024. For the quarter, net investment income came in robust at $52.4 million, up 22% year-over-year. NII/share was $0.59, six cents higher year-over-year.

NAV rose by 3.5% to $17.17 compared to last year. The rise in investment income was due to a larger portfolio of companies and a higher weighted average total yield on debt, which rose by 10 bps year-over-year to 14.0%. However, this metric actually fell by 20 basis points sequentially.

Click here to download our most recent Sure Analysis report on TSLX (preview of page 1 of 3 shown below):

High Yield BDC #18: Capital Southwest Corp. (CSWC)

Capital Southwest Corporation is an internally managed BDC. The company specializes in providing customized debt and equity financing to lower middle market (LMM) companies and debt capital to upper-middle market (UMM) companies located primarily in the United States.

Capital Southwest reported its fiscal Q4 and full-year results for the period ending March 31st, 2024. The decrease in investment income was primarily attributable to a decrease in dividend income due to softer distributions received from equity investments. The weighted average yield on debt also declined from 13.5% to 13.3% during this period.

Pre-tax net investment income (NII) came in at $29.8 million, stable compared to Q3-2024. On a per-share basis, pre tax net investment income fell from $0.72 to $0.68, though, due to a higher share count. For the year, NII/share was $2.72.

Click here to download our most recent Sure Analysis report on CSWC (preview of page 1 of 3 shown below):

High Yield BDC #17: Fidus Investment Corp. (FDUS)

Fidus Investment Corporation provides customized debt and equity financing solutions to lower middle-market companies.

Its investment criteria comprise cash-flow-positive businesses generating predictable revenues in the range of $10-$150 million annually and at defensible and/or leading positions in their respective markets.

On May 2nd, 2024, Fidus Investment Corp. reported its Q1 results for the period ending March 31st, 2024. For the quarter, the company achieved a total investment income of $34.7 million, up 19.3% year-over-year.

The $5.6 million increase in total investment income for the three months ended March 31, 2024, as compared to the same period in 2023 was primarily attributable to a $3.6 million increase in total interest income (which includes payment-in-kind interest income) resulting from an increase in average debt investment balances outstanding.

Click here to download our most recent Sure Analysis report on Fidus (preview of page 1 of 3 shown below):

High Yield BDC #16: Hercules Capital (HTGC)

Hercules Capital markets itself as the largest specialty finance company in the United States. The company focuses on providing senior secured venture growth loans to high-growth, innovative VC-backed companies in the sectors of technology, life sciences, and renewable energy.

Hercules Capital owns primarily debt securities as well as some equity securities and warrants.

Hercules Capital reported record-breaking performance in the first quarter of 2024, with total gross debt and equity commitments reaching $956.0 million, marking an impressive 81.7% increase year-over-year. The company also achieved record total gross fundings of $605.2 million, reflecting a substantial 27.1% increase compared to the same period in the previous year.

Total investment income for Q1 2024 amounted to $121.6 million, showcasing a notable 15.7% year-over-year increase. Net investment income (NII) for the quarter stood at $79.2 million, or $0.50 per share, representing a significant 20.9% year-over-year growth.

Click here to download our most recent Sure Analysis report on HGTC (preview of page 1 of 3 shown below):

High Yield BDC #15: Ares Capital (ARCC)

Ares Capital Corporation invests primarily in U.S. middle-market companies, as well as larger companies. Its portfolio is comprised of first and second lien senior secured loans as well as mezzanine debt, diversified by industry and sector.

On February 13th, 2024, Ares Capital Corp. announced its financial results for the fourth quarter of 2023. Core Earnings per share came in at $0.63, exceeding market expectations.

This result was driven by strong net investment income and continued robust activity in ARCC’s investment portfolio. The company reported higher total investment income and fee revenue gains and saw its Net Asset Value (NAV) improve from the previous quarter.

Click here to download our most recent Sure Analysis report on Ares (preview of page 1 of 3 shown below):

High Yield BDC #14: Blue Owl Capital (OBDC)

Owl Rock Capital Corporation aims to invest and lend funds to U.S. middle-market companies that generate annual EBITDA between $10 million and $250 million and/or annual revenues of $50 million to $2.5 billion at the time of investment. The company generates around $1.2 billion in gross investment income annually.

On July 6th, 2023, the company’s name was changed from Owl Rock Capital Corporation to Blue Owl Capital Corporation, and its ticker from ORCC to OBDC.

On May 8th, 2024, Blue Owl Capital declared a base dividend of $0.37. It had also previously declared a supplemental dividend of $0.08 that was paid in March. We are using the annualized rate of Blue Owl’s base dividend, but total dividends/share for the year should be at least $1.56 (4 X $0.37 base dividends + 1 X $0.08 in supplemental dividend).

For the 2024 first quarter, the company achieved a gross investment income of $399.2 million, 5.8% higher compared to last year.

Click here to download our most recent Sure Analysis report on OBDC (preview of page 1 of 3 shown below):

High Yield BDC #13: Golub Capital BDC (GBDC)

Golub Capital aims to generate interest income and capital appreciation by investing primarily in one-stop and other senior secured loans of U.S. middle-market companies.

The company’s investment criteria require its potential investments to generate annual EBITDA of less than $100 million, have a sustainable leading position in their respective markets, and scalable revenues and operating cash flows.

On May 6th, 2024, Golub Capital reported its fiscal Q2 2024 results for the quarter ended March 31st, 2024. Note that the company’s fiscal year ends September 30th.

As a result of a relatively stable investment portfolio and stable investment yields, Golub achieved a total investment income of $164.2 million, which was mostly flat quarter-over-quarter. Net investment income grew 3.8% to $87.1 million, as expense control led to robust investment margins.

On a per-share basis, net investment income came in at $0.51, up two cents compared to last year. On an adjusted basis, which excludes amortization of purchase premium per share, EPS came in at $0.51, stable year-over-year.

Click here to download our most recent Sure Analysis report on Golub (preview of page 1 of 3 shown below):

High Yield BDC #12: New Mountain Finance (NMFC)

New Mountain Finance Corp. specializes in financing quality, middle-stage businesses that display “defensive growth” characteristics. Its businesses typically generate anywhere from $10-$200 million of EBITDA, to which NMFC provides senior secured debt, including 1st lien, 2nd lien, and uni-tranche loans.

Its portfolio consists of 108 individual investments, the top 15 of which represent around $1.25 billion worth of equity stakes.

On May 1st, 2024, the company reported its Q1 results for the period ending March 31st, 2024. During the quarter, the company generated net investment income per share of $0.36, compared to $0.32 last year.

Overall, operations remained very stable, and management reiterated that the company is well-positioned to continue finding opportunities in “defensive growth” industries. Management also mentioned they remain confident that NMFC remains well-positioned to continue to deliver a strong and stable dividend moving forward.

In line with the introduction of a supplemental dividend program two quarters ago, a supplemental dividend of $0.02 will be paid along with the regular payout in March. NAV/share was $12.77, down from $12.87 sequentially.

Click here to download our most recent Sure Analysis report on NMFC (preview of page 1 of 3 shown below):

High Yield BDC #11: SLR Investment (SLRC)

SLRC is a Business Development Company that primarily invests in U.S. middle market companies. The company has five core business units which include cash flow, asset-based, life science lending, equipment finance, and corporate leasing.

The trust’s debt investments primarily consist of cash flow senior secured loans, including first lien and second lien debt instruments. It also offers asset-based loans including senior secured loans collateralized on a first lien basis by current assets.

On May 8th, 2024, SLR Investment Corp. reported its Q1 results for the period ending March 31st, 2024. For the quarter, total investment income totaled $58.1 million, up 8.5% sequentially.

The increase in total investment income was mainly powered by higher interest income and dividend income from the company’s investments due to higher interest rates and improved financial performance from invested companies.

On a per-share basis, net investment income came in at $0.44, stable sequentially. We continue to forecast NII/share of $1.70 for fiscal 2024.

Click here to download our most recent Sure Analysis report on SLRC (preview of page 1 of 3 shown below):

High Yield BDC #10: Horizon Technology Finance (HRZN)

Horizon Technology Finance Corp. is a BDC that provides venture capital to small and medium–sized companies in the technology, life sciences, and healthcare–IT sectors.

The company has generated attractive risk–adjusted returns through directly originated senior secured loans and additional capital appreciation through warrants.

Source: Investor Presentation

On April 30th, 2024, Horizon released its Q1 results. For the quarter, total investment income fell 6.8% year-over-year to $26.1 million, primarily due to lower interest income on investments from the debt investment portfolio.

The dollar-weighted annualized yield on average debt investments in Q1 of 2024 and Q1 of 2023 was 15.6% and 16.3%, respectively.

Click here to download our most recent Sure Analysis report on HRZN (preview of page 1 of 3 shown below):

High Yield BDC #9: PennantPark Floating Rate Capital (PFLT)

PennantPark Floating Rate Capital Ltd. is a business development company that seeks to make secondary direct, debt, equity, and loan investments.

The fund also aims to invest through floating rate loans in private or thinly traded or small market-cap, public middle market companies, equity securities, preferred stock, common stock, warrants or options received in connection with debt investments or through direct investments.

PennantPark recently released its financial results for the second quarter ending March 31, 2024. The company reported a $1.478 billion investment portfolio. Net assets totaled $721 million, with a GAAP net asset value per share of $11.40.

There was a 1.8% quarterly increase in both GAAP and adjusted net asset value per share. The credit facility stood at $169 million, with various asset-backed debts ranging from $183.4 million to $283.8 million.

The regulatory debt-to-equity ratio was reported at 1.21x, and the weighted average yield on debt investments at quarter-end was 12.3%.

Click here to download our most recent Sure Analysis report on PFLT (preview of page 1 of 3 shown below):

High Yield BDC #8: Stellus Capital (SCM)

Stellus Capital Management provides capital solutions to companies with $5 million to $50 million of EBITDA and does so with a variety of instruments, the majority of which are debt.

Stellus provides first lien, second lien, mezzanine, convertible debt, and equity investments to a diverse group of customers, generally at high yields, in the US and Canada.

Source: Investor Presentation

Stellus posted first quarter earnings on May 9th, 2024. Stellus generated $0.44 in adjusted earnings-per-share. Total investment income was $26 million, up 8% year-over-year.

Operating expenses came to $16 million, up from $15 million a year ago. The increase was driven by higher incentive fees, as the base management fees for both periods was roughly equal. Net investment income was $10.2 million, up from $9.1 million.

Click here to download our most recent Sure Analysis report on Stellus (preview of page 1 of 3 shown below):

High Yield BDC #7: Goldman Sachs BDC (GSBD)

Goldman Sachs BDC is a closed-end management investment company. GSBD provides specialty finance lending to U.S.-based middle-market companies, which generate EBITDA in the range of $5-$200 million annually, primarily through “unitranche” first-lien loans.

The company will usually make investments that have a maturity between three and ten years and in size between $10 million and $75 million.

As of March 31st, 2024, GSBD’s portfolio included 149 companies at a fair value of around $3.95 billion.

Source: Investor Presentation

The investment portfolio was comprised of 97.5% senior secured debt, including 96.5% in first-lien investments.

In the 2024 first quarter, total investment income of $115.5 million compared to $115.4 million in the previous quarter.

The decrease in total investment income was primarily driven by a decrease in accelerated accretion of upfront loan origination fees and unamortized discounts.

Click here to download our most recent Sure Analysis report on GSBD (preview of page 1 of 3 shown below):

High Yield BDC #6: Oaktree Specialty Lending (OCSL)

Oaktree Specialty Lending provides lending services and invests in small and mid-sized companies. Its investments generally range in size from $10 million to $100 million and are principally in the form of the first lien, second lien, or collectively, senior secured, and subordinated debt investments.

As of March 31st, 2024, the investment portfolio accounted for $3.0 billion at fair value diversified across 151 portfolio companies.

Source: Investor Presentation

On April 30th, 2024, Oaktree Specialty Lending Corp. released its second quarter of fiscal 2024 results for the period ending March 31st, 2024.

For the quarter, the company reported adjusted net investment income (NII) of $44.7 million or $0.56 per share, as compared with $44.2 million, or $0.57 per share, in the first quarter of fiscal 2024.

The slight increase in earnings was primarily driven by lower Part I incentive fees, professional fees, and interest expense, partially offset by a decrease in adjusted total investment income.

Click here to download our most recent Sure Analysis report on OCSL (preview of page 1 of 3 shown below):

High Yield BDC #5: Great Elm Capital (GECC)

Great Elm Capital Corporation is a business development company that specializes in loan and mezzanine, middle market investments.

It seeks to create long-term shareholder value by building its business across three verticals: Operating Companies, Investment Management, and Real Estate.

The company favors investing in media, healthcare, telecommunication services, communications equipment, commercial services and supplies.

Source: Investor Presentation

In the 2024 first quarter, Great Elm Capital reported total investment income of $1.03 per share. However, GECC also reported net realized and unrealized losses of approximately $3.7 million, or $0.42 per share, during this period.

GECC deployed approximately $64.2 million into 29 investments at a weighted average current yield of 12.5% during the quarter.

Click here to download our most recent Sure Analysis report on GECC (preview of page 1 of 3 shown below):

High Yield BDC #4: Monroe Capital (MRCC)

Monroe Capital Corporation provides financing solutions primarily to lower middle-market companies in the United States and Canada.

The company primarily invests in senior and “unitranche” secured loans ranging between $2.0 million and $25.0 million each. It generates nearly $57 million annually in total investment income.

Source: Investor Presentation

On May 8th, 2024, Monroe Capital Corporation reported its Q1 results. Total investment income for the quarter came in at $15.2 million, compared to $15.5 million in the previous quarter.

The weighted average portfolio yield fell during the quarter, from 12.1% to 11.9%, though it remained rather high as a result of an elevated interest rates environment.

A slightly higher number of portfolio companies, which grew from 96 to 98 also impacted total investment income. Net investment income per share came in at $0.25, stable from last quarter’s $0.25.

Click here to download our most recent Sure Analysis report on MRCC (preview of page 1 of 3 shown below):

High Yield BDC #3: Prospect Capital (PSEC)

Prospect Capital Corporation is a Business Development Company, or BDC, that provides private debt and private equity to middle–market companies in the U.S.

The company focuses on direct lending to owner–operated companies, as well as sponsor–backed transactions. Prospect invests primarily in first and second lien senior loans and mezzanine debt, with occasional equity investments. 

Source: Investor Presentation

Prospect posted third quarter earnings on May 8th, 2024. Net investment income came to $94.4 million, off from just under $97 million in the December quarter, and down from $102.2 million a year ago.

As a percentage of total net investment income, interest income was 91%, slightly lower than prior quarters.

On a per-share basis, NII came to 23 cents, down from 24 cents in the December quarter, and down from 26 cents in the March period a year ago.

NAV declined from $9.48 in the March quarter last year to $8.99, but up slightly from $8.92 in the December quarter.

Click here to download our most recent Sure Analysis report on PSEC (preview of page 1 of 3 shown below):

High Yield BDC #2: Oxford Square Capital (OXSQ)

Oxford Square Capital Corp. is a BDC specializing in financing early and middle–stage businesses through loans and CLOs.

The company holds an equally split portfolio of First–Lien, Second–Lien, and CLO equity assets spread across multiple industries, with the highest exposure in software and business services.

Source: Investor Presentation

On May 2nd, 2024, Oxford Square reported its Q1 results for the period ending March 31st, 2024. For the quarter, the company generated approximately $10.7 million of total investment income, down from $12.3 million in the previous quarter.

The weighted average cash distribution yield of its cash income producing CLO equity investments at current also rose sequentially from 13.6% to 13.7%.

Click here to download our most recent Sure Analysis report on OXSQ (preview of page 1 of 3 shown below):

High Yield BDC #1: TriplePoint Venture Growth BDC (TPVG)

TriplePoint Venture Growth BDC Corp specializes in providing capital and guiding companies during their private growth stage, before they eventually IPO to the public markets.

Source: Investor Presentation

On May 1st, 2024, the company posted its Q1 results. For the quarter, total investment income of $29.3 million compared to $33.6 million in Q1-2023.

The decrease in total investment was primarily due to a lower weighted average principal amount outstanding on the BDC’s income-bearing debt investment portfolio. The number of portfolio companies fell from 59 last year to 49.

The company’s weighted average annualized portfolio yield came in at 15.4% for the quarter, up from 14.7% in the prior-year period.

Also during Q1, the company funded $13.5 million in debt investments to three portfolio companies with a 14.3% weighted average annualized yield at origination.

Click here to download our most recent Sure Analysis report on TPVG (preview of page 1 of 3 shown below):

Final Thoughts

Business Development Companies allow investors the opportunity to invest indirectly in small and mid-size businesses. And, BDCs have obvious appeal for income investors. BDCs widely have high dividend yields above 5%.

Of course, investors should consider all of the unique characteristics, including but not limited to the tax implications of BDCs. Investors should also be aware of the risk factors associated with investing in BDCs, such as the use of leverage, interest rate risk, and default risk.

Further Reading

If you are interested in finding high-quality dividend growth stocks and/or other high-yield securities and income securities, the following Sure Dividend resources will be useful:

High-Yield Individual Security Research

Other Sure Dividend Resources

Thanks for reading this article. Please send any feedback, corrections, or questions to support@suredividend.com.



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