Three Dividend-paying Business Development Company Stocks to Buy

Three dividend-paying business development company stocks to buy feature recommendations from Cash Machine investment newsletter leader Bryan Perry.

The three dividend-paying business development company stocks (BDCs) to purchase offer at least 10% dividend yields and a chance for capital appreciation. Perry, who currently averages a dividend yield of 10.8% with Cash Machine’s BDC picks, has seen some of his picks soar.

In light of apparent headwinds of ongoing food and energy inflation, a likely tough tone out of the Fed, an outside chance of a partial government shutdown, an ever-growing auto strike and glaring diplomatic failures in China and Iran, the market is trading considerably better than most would think, Perry wrote to his Cash Machine subscribers. It also explains why investors content with $5.5 trillion are collecting 5%-plus in guaranteed short-term cash instruments and Treasuries, he added.

Paul Dykewicz interviews Bryan Perry at a MoneyShow.

Three Dividend-paying Business Development Company Stocks: CSWC

“The Cash Machine model portfolio is paying out a blended yield of 10.8%, two times that of the highest Treasury securities, and doesn’t factor in current and potential capital gains,” Perry wrote to his subscribers. “To this end, I’m confident our portfolio will deliver strong third-quarter results and set up well for a solid fourth-quarter performance. The economy is poised to see GDP grow at 5% or higher for the third quarter. If so, our portfolio is in a good place.”

One of the recommended companies that seems poised to keep its recent gains going is Dallas-based Capital Southwest Co. (CSWC). The BDC was recommended on March 7 and is up more than 26% through Friday, Sept. 22. The company offers a forward dividend payout of $2.36 and a current yield of 10.44%.

“One sector of the economy that is enjoying some genuine prosperity is the business-to-business lending industry, where issuing floating rate loans well above historical averages is affording business development companies to pay out double-digit-percentage dividend yields,” Perry wrote.

Chart Courtesy of www.stockcharts.com

Three Dividend-paying Business Development Company Stocks: Thriving Lender

Perry described CSWC as “thriving” in its niche of financing. Capital Southwest became a recommendation in the Extreme Income Portfolio of Perry’s April 2023 issue of his Cash Machine investment newsletter. The BDC specializes in lead financing of $5 to $70 million that regularly has the company as an equity partner with an active network of co-investors.

Capital Southwest targets companies generating minimum earnings before interest taxes, depreciation and amortization (EBITDA) of $3 million, where the typical borrower has $3 to $20 million in EBITDA. Plus, 96% of its loans are first lien in structure, with total balance sheet assets standing at $1.2 billion as of the end of 2022.

The company will only make non-control investments. Its lending criteria is aimed at industrial manufacturing and services, value-added distribution, health care products and services, business services, specialty chemicals, tech-enabled services and software as a service (SaaS) models and food and beverage. The analyst community is very bullish on the company’s prospects for 2023 and 2024.

Three Dividend-paying Business Development Company Stocks: Special Meeting

Capital Southwest announced in August that it would hold a special meeting of its shareholders virtually on Oct. 11 about proposals of “utmost importance.” They relate to a proposed amendment to the company’s charter to increase the number of authorized shares of common stock from 40,000,000 to 75,000,000.

The additional authorized shares of common stock will allow the company to continue its strong track record of growing the asset base by pursuing attractive investment opportunities consistent with its investment strategy. If the company cannot access the equity capital markets by issuing additional common shares, the capacity to grow its balance sheet could be adversely affected.

Capital Southwest has roughly $1.3 billion in investments at fair value, as of June 30, 2023. The company is a middle market lending firm focused on supporting the acquisition and growth of middle market businesses with $5 million to $35 million investments across the capital structure, including first lien, second lien and non-control equity co-investments. As a public company, Capital Southwest has the flexibility to be creative in its financing and to invest to support the growth of its portfolio companies over long periods of time, its management announced.

Three Dividend-paying Business Development Company Stocks: Trinity Capital

Trinity Capital Inc. (NASDAQ: TRIN), a Phoenix, Arizona-based provider of diversified financial solutions to growth-stage companies, is up more than 5% since its recommendation and pays a forward dividend pegged at $2.16 that producing an annual yield of 15.04%. Perry placed TRIN in Trinity Capital in his Extreme Income Portfolio after the company posted exceptional second-quarter results and conducted a $75 million secondary stock offering at $14.45 that was priced just above where the stock currently trades.

Trinity intends to use the net proceeds from the offering to pay down a portion of its existing indebtedness outstanding under its KeyBank Credit Facility, to make investments in concert with its investment objective and investment strategy, and for general corporate purposes. UBS Investment Bank, Morgan Stanley, Keefe, Bruyette & Woods, a Stifel Company, RBC Capital Markets and Wells Fargo Securities served as joint-lead book-running managers for the offering. Compass Point, Ladenburg Thalmann and Oppenheimer & Co. acted as the offering’s co-managers.

Chart Courtesy of www.stockcharts.com

Three Dividend-paying Business Development Company Stocks: Dividend Update

On Sept. 13, Trinity Capital announced its Board of Directors declared a cash dividend of $0.54 per share with respect to the quarter ending September 30, 2023. The payout consists of a regular quarterly dividend of $0.49 per share and a supplemental cash dividend of $0.05 per share. The dividend marks a boost of 2.1% over the regular dividend declared in the prior quarter and is the 10^th consecutive boost in payout.

The company’s performance also is gaining attention from Perry. He noted that Trinity Capital recorded second-quarter total investment income of $46 million, a 37.6% jump from the same period in 2022. That $0.61 per share beating estimates by $0.06. This increase was attributable to interest earned on the higher average loan balances in Trinity’s debt investment portfolio.

The effective yield on the portfolio for Q2 was 16.2%, compared to 15% in the first quarter. The core yield, which excludes non-recurring fee income, jumped to 14.8% from 14.3% in the prior quarter. The debt portfolio remains well positioned against recent interest rate heights with 72% of debt investments at floating rates.

The company’s objective is to distribute four quarterly dividends in an amount that approximates 90% to 100% of its taxable quarterly income or potential annual income for a particular year to qualify for tax treatment as a regulated investment company under the Internal Revenue Code of 1986. In addition, the company may pay additional supplemental dividends, so that it distributes approximately all its annual taxable income in the year it was earned, or it may spill over the excess taxable income into the coming year for future dividend payments.

Three Dividend-paying Business Development Company Stocks: SLRC

New York’s SLR Investment Corp. (NASDAQ: SLRC) is a yield-oriented BDC that invests directly and indirectly in senior secured loans of private middle market companies to generate current income that is distributed to shareholders monthly. SLRC collaborates with U.S. middle market businesses across a diversity of industries to deliver customized debt financing solutions.

On April 1, 2022, SLR Investment Corp. acquired its affiliate BDC, SLR Senior Investment Corp. The combined company trades under SLR Investment Corp.’s NASDAQ symbol, SLRC.  The company’s forward dividend is $1.64, while its yield is 10.67%.

Income investors will like that SLRC declared a distribution of $0.136667 per share for the month of September 2023. The distribution is payable on September 28, 2023, to stockholders of record as of September 20, 2023, so anyone who did not own the stock by then needs to wait for the next payout.

Three Dividend-paying Business Development Company Stocks: Perry’s Analysis

In Perry’s analysis, BDCs have performed well against a rising rate environment, delivering double-digit-percentage yields and some price appreciation. For income investors, it has been a good place to position their capital.

The BDC sector continues to see rising demand for quick and easy loans from small- to midsized privately owned businesses. The shakeout in the regional bank sector earlier this year spurred tighter lending standards at the banks, thereby diverting loan customers to the BDC market, Perry wrote. SLRC provides a diversified array of commercial finance solutions, encompassing cash flow-lending, asset-based lending and specialty finance investment strategies. Its main target is U.S. middle market businesses and intermediaries with debt financing solutions to fund working capital, acquisition, refinancing and growth capital requirements.

The fund’s investments generally range between $5 million and $100 million. SLRC invests in companies with revenues between $50 million and $1 billion and earnings before interest, taxes, depreciation and amortization (EBITDA) between $15 million and $100 million.

SLRC also invests by offering senior secured loans, mezzanine loans and equity securities. It may also seek investments in thinly traded public companies and provide secondary investments. The fund further makes non-control equity investments, while primarily exiting within three years of the initial capital commitment.

Chart Courtesy of www.stockcharts.com

Three Dividend-paying Business Development Company Stocks: Political Risk

The three dividend-paying BDCs to consider buying feature recommendations from the Cash Machine investment newsletter. The picks by seasoned Wall Street Trader Bryan Perry could be good additions to the portfolios of investors seeking income and capital appreciation, especially with rising political risk due to Russia’s invasion of Ukraine triggering a fierce counteroffensive that lately has launched strikes against positions in the Crimea section of Ukraine that Russia has held since its prior land-grabbing assault in 2014.

Paul Dykewicz, www.pauldykewicz.com, is an award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.