What Is a Business Development Company? 2 BDC Stocks to Buy for Income.
Key PointsMain Street Capital has a yield of 7.66% and has increased it annually for 20 years.
Business Development Companies (BDCs) are a lesser-known investment option that aims to generate high dividends. Like Real Estate Investment Trusts (REITs), BDCs are required to distribute 90% of their taxable income as dividends. This makes them an attractive choice for investors seeking income. In this article, we will discuss two top BDC stocks to consider for income-generating investments.
Main Street Capital (MAIN) is a leading BDC that has consistently raised its dividend for 19 consecutive years, including the 20th year in 2027. The company distributes a monthly dividend, providing investors with a steady income stream. Furthermore, Main Street Capital holds an equity stake in its investments, which contributes to its overall success.
With a high dividend yield of 7.66%, Main Street Capital is an excellent option for investors seeking income and potential capital appreciation. Reinvesting the dividends has resulted in an impressive 16.6% annualized return over the years.
Ares Capital (ARCC) is another BDC worth considering for income investors. With a higher dividend yield of 9.88%, Ares Capital pays out quarterly dividends. Although its dividend growth has not been as consistent as Main Street Capital's, the company has maintained its dividend at $0.48 per share for the past four years. Ares Capital invests in larger, middle-market companies with strong cash flows, experienced management, and differentiated business models.
While its stock has a lower average annualized return (2.2%) compared to Main Street Capital, with dividend reinvestment, Ares Capital's return increases to 12.4% over the past decade.
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