Since traditional banks have backed off on business lending over the years, BDCs (business development companies) have stepped in. They provided much-needed debt, equity, and other financial solutions to small businesses—and much-needed income to dividend investors.
As an asset class, BDCs yield 8%. We’ll discuss three popular payers—with dividends up to 8.3%—in a moment.
Congress whipped up BDCs with a few pen strokes in 1980, creating a structure that’s incentivized to provide smaller companies with financing. BDCs receive special tax privileges, and in exchange, they must return at least 90% of their taxable profits to shareholders as dividends.
If that sounds familiar, that’s because that same tradeoff is enjoyed by real estate investment trusts (REITs), which were formed the same way, 20 years prior.… Read more