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, investors can find especially strong dividends from these 3 high-yielding BDCs.
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 February 8th, 2023 Golub Capital reported its fiscal Q1 2023 results for the quarter ended December 31st. As a result of a larger investment portfolio and higher interest rates, the company achieved a total investment income of $136.9 million, up 14.4% quarter-over-quarter.
Net investment income grew 18.3% to $63.9 million, as lower increase in expenses led to an expansion in investment margins. On a per-share basis, net investment income also rose from $0.32 to $0.36. On an adjusted basis, which excludes amortization of purchase premium per share, EPS grew from $0.33 to $0.37.
With improved earnings following rising interest rates, we believe that at the minimum, Golub’s $1.32 base dividend remains relatively well-covered. Because most of the company’s investments are in one-stop debt and secured notes, its assets should prove resilient during a potential recession. Shares currently yield 9.9%.
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. Sixth Street’s portfolio includes 78 investments, with no company making up more than 2.8% of its net assets.
On February 16th, 2023, Sixth Street Specialty Lending reported its Q4-2022 and full-year results for the period ending December 31st, 2022. For the quarter, net investment income came in robust at $52.6 million, up 13.9% year-over-year. NII/share was $0.65, two cents higher year-over-year, while NAV rose by 0.73% to $16.46 compared to last year. The increase in net investment income was due to a larger portfolio of companies and a higher weighted average total yield on debt, which rose by 320 bps year-over-year to 13.4%.
For FY2023, we expect NII/share of $2.00. The company also increased its quarterly base dividend by one cent to $0.46. Shares currently yield 10%.
Gladstone Capital (GLAD)
Gladstone Capital is a business development company 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. The BDC’s stated purpose is to generate income it can distribute to its shareholders.
Gladstone reported first quarter earnings on February 6th, 2023, and results were slightly better than expected. Net investment income came to 25 cents per share, which was a penny better than expected. Total investment income, which is akin to revenue, was up 21% year-over-year to $19.3 million.
This was nearly a million dollars better than estimates. The gain in the top line was due to higher interest income, driven by increased weighted average yield, as well as higher balances of interest-bearing investments.
Gladstone is in the process of rebuilding its dividend, and it is now back to 90 cents annually. The current payout looks quite sustainable following the recent dividend raise. Shares yield 9.7%.
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.
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