2 BDC Stocks to Buy and Hold That Earn More Than Their Regular Dividends

Main Street Capital (MAIN) and Hercules Capital (HTGC) are two business development companies (BDCs) that offer exceptionally high dividend yields, making them intriguing investment opportunities. Both companies pay both a regular dividend and a supplemental dividend, which can complicate the analysis of their income potential. However, when focusing on the regular dividend, both BDCs demonstrate strong coverage ratios, indicating their ability to sustain these payments even during adverse economic conditions.

Main Street Capital's regular dividend yields 5.9%, while Hercules Capital's yields 9.9%. Main Street's distributable income covers its regular dividend by 130%, while Hercules covers its by 125%. This substantial coverage provides a cushion against potential adversity, even if supplemental dividends are temporarily paused. The primary risk with BDCs lies in the volatility of their investment income, which can fluctuate with economic conditions.

However, Main Street and Hercules appear well-positioned to withstand such fluctuations due to their robust coverage ratios. While the supplemental dividends are not a guaranteed long-term income source, the strong coverage of main dividends suggests that these BDCs can serve as reliable investments for the long haul.