All BDCs + 5 Worth Watching
Business Development Companies (BDCs) are an easy way to invest in private credit.
They typically have high yields because they must distribute at least 90% of their taxable income to shareholders.
In this article, we’ll rank BDCs using different metrics.
At the end, I’ll share 5 of my favorites.
Download the BDC List
I created a spreadsheet for you with all the major publicly traded BDCs.
The spreadsheet includes:
Price
52-Week High and Low
Dividend Yield
Return on Equity
Debt / Equity
Market Cap
Highest Dividend Yields
The 5 BDCs with the highest current yields are:
Horizon Technology Finance Corporation (HRZN): 32.67%
Investcorp Credit Management (CMB): 26.53%
Great Elm Capital Corp. (GECC): 24.34%
Oxford Square Capital Corp. (OXSO): 24.00%
BCP Investment Corp. (BCIC): 23.68%
Strongest Balance Sheets (Lowest Debt-to-Equity)
The 5 BDCs with the lowest debt-to-equity are:
Rand Capital Corp (RAND): 0.0%
Phenixfin Corp (PFX): 0.1%
Bain Capital Specialty Finance Inc (BCSF): 0.13%
EQUUS Total Return Inc (EQS): 7.3%
SuRo Capital Corp (SSSS): 16.6%
Highest ROE
The 5 BDCs with the highest Return on Equity are:
Gladstone Investment Corporation (GAIN): 24.70%
Main Street Capital Corp (MAIN): 16.94%
Hercules Capital Inc (HTGC): 15.88%
Horizon Technology Finance Corp (HRZN): 14.87%
Trinity Capital Inc (TRIN): 14.09%
I went through the sector and picked out 5 BDCs that could be interesting for a long-term income portfolio.
Here is why they are interesting, their valuation relative to book value, and their track record.
5. Blue Owl Capital Corp (OBDC)
Blue Owl Capital is one of the largest BDCs in the world, mainly focusing on upper-middle-market companies with high EBITDA.
Why is it an interesting company?
Direct Lenders: They have deep relationships with private equity sponsors, giving them steady access to high-quality deals
Defensive Portfolio: They focus on recession-resistant industries like software, healthcare, and insurance.
Shareholder Aligned: They have a history of aggressive share buybacks when the stock trades below NAV.
Valuation
Dividend Yield: 13.5%
Price-to-NAV: 0.74x (Trading at a discount)
4. Sixth Street Specialty Lending (TSLX)
Sixth Street is known for being one of the most disciplined underwriters in the business. They often take first-lien positions to protect their principal.
Why is it an interesting company?
High ROE: Consistently delivers Return on Equity in the low-to-mid teens.
Variable Dividends: They pay a reliable base dividend plus special dividends whenever they have a big exit or high income.
Niche Expertise: Sixth Street will invest in special situations like challenged businesses with good assets or good businesses with challenging capital structure that other lenders often avoid.
Valuation
Dividend Yield: 10.4% (Base + Supplemental)
Price-to-NAV: 1.06x
3. Hercules Capital (HTGC)
Hercules provides venture debt to high-growth, innovative companies in technology, life sciences, and renewable energy.
Why is it an interesting company?
Venture Upside: Unlike traditional BDCs, Hercules often gets warrants (options to buy stock) in the startups they lend to, providing huge upside if a client goes public.
Floating Rate Exposure: Their portfolio is almost entirely floating rate, which has been beneficial as rates have increased.
High-Quality Client Base: They lend to companies backed by top-tier Venture Capital firms.
Valuation
Total Dividend Yield: 13.4%
Price-to-NAV: 1.16x (Investors pay a high premium for this management team)
2. Ares Capital (ARCC)
Ares is the largest BDC out there. With the largest market cap in the sector, they have the scale to do deals that no one else can.
Why is it an interesting company?
Long-Term Track Record: Since their IPO in 2004, they have outperformed the S&P 500 and the broader BDC index.
Diversification: They have over 600 different portfolio companies, meaning no single company failure can sink the ship.
Access to Capital: Because of their size, they can borrow money at lower rates than their competitors, widening their profit margins.
Valuation
Dividend Yield: 10.6%
Price-to-NAV: 0.91x
1. Main Street Capital (MAIN)
Main Street is widely considered the Gold Standard BDC. They are unique because they are internally managed, meaning they don’t pay high management fees to an outside firm.
Why is it an interesting company?
Lower Cost Structure: Because they are internally managed, their operating costs as a percentage of assets are significantly lower than peers.
Monthly Dividends: MAIN is one of the few high-quality companies that pays its shareholders every single month.
Small Cap Specialists: They focus on very small companies where they can get higher interest rates and significant equity ownership.
Valuation
Dividend Yield: 5.7% (Regular) + Special Dividends (Total 7.9%)
Price-to-NAV: 1.64x (Always expensive, but for a reason)
Conclusion
BDCs are a fantastic tool for income, but you have to understand how to analyze them.
If you want to learn more about that, you can read our Ultimate Guide to BDCs next.
Here are the five we highlighted today:
Blue Owl Capital Corp: An institutional-grade lender trading at a discount
Sixth Street Specialty Lending: A disciplined, high-ROE underwriter.
Hercules Capital: A high-growth tech specialist with warrant upside.
Ares Capital: The largest BDC, with a 20+ year track record.
Main Street Capital: The monthly-pay gold standard.
One Dividend At A Time
TJ
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Fiscal.ai: Financial data
Disclaimer
As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.
Here are my personal opinions.