One of the most interesting features for me was/is is the requirement for the company to distribute 90% of it's net investment income to shareholders, which allows for the high yields which, along with MReits, provide some juice in my otherwise ABT-like portfolio. Down side is that most of the dividend income is treated as ordinary income for federal tax purposes, so they are better in an IRA if possible. Who knows in the future what that will mean??
Most BDCs make money by lending to companies in the small to mid cap range and sometimes take an equity interest in the firms they invest in and can even get involved in the management in some cases. My personal opinion is that they are helpful to capitalistic and entrepreneurial business development, and they charge really high interest rates, thus the healthy dividends.
Banks have been and remain tight in lending to anyone or anything that doesn't have a perfect rating, so BDCs currently have good opportunities to make loans on advantageous terms, but in a downturn these can go bad FAST.
My impression is that most BDCs have much less leverage than most financial stocks, but will be and are usually painted with the same brush.
Be aware that CODI is also structured as a Master Limited Partnership.
I read through these decent presentation on BDC's which explain them fairly well.
publiclytradedprivateequity.com
pinnaclevaluefund.com
mofo.com
There is a special forum specifically for BDC's that requires a membership, but also gives some good analysis of different BDC's.
bdcs.valueforum.com
MAIN is wildly overvalued IMO, although they recently raising the dividend. I like MAIN because the insiders have a lot of skin in the game, and that makes me feel like they are a little more vested in the outcome of the company. |
