Separating out the most promising stocks from the entire sector, Tim Plaehn has discovered the top five business development companies with high yields to buy today. Each has a yield above 7% (the highest is 14.6%), ample cash flow to cover dividends, and great prospects for accelerating income.
The first calendar quarter of 2016 produced a wild ride for stock market investors. By mid-January, the markets were down over 10% and the financial infotainment shows were already talking about a record down year for the market. Now, at the end of March, the major stock indexes are above where they started the year. Investors who buy shares of business development companies (BDCs) are in them for the dividend income and do not really appreciate large share price swings. The market swings have separated the BDC pack, with a split between positive returns and negative results so far in 2016.
All of the 33 stocks in the BDC sector paid a dividend in the first quarter, which means share prices went through the ex-dividend share price drop. Now at the end of the quarter, 10 of the BDCs have share values higher than where they closed on December 31st, 2015. Investors owning shares of these stocks have earned their dividends plus some additional share price gains. The lower half of the BDC line-up consists of those companies where the share prices have fallen by a much larger amount than the dividends earned during the quarter. At the bottom of the list are a half dozen BDCs that have posted double-digit losses even when including dividends.
The current volatile economic markets and an uncertain future for the financial sector should encourage investors to stick with those BDCs that show both business and share price stability. It does no good to invest in a stock with a double-digit yield if the share price is dropping by 5% to 10% every quarter. To help you sort out the few more attractive BDC stocks from the generally not attractive pack, here are five stocks that have posted positive share price and total returns for the 2016 first quarter. They each offer a different story for investment potential going forward.
