As shown below, TSLX, FSK, GBDC, FDUS, CSWC, ARCC, OCSL, and NEWT are going ex-dividend.
Followed by MRCC, NMFC, TCPC, OXSQ, TPVG, AINV, PFLT, PNNT, AINV, GAIN, and GLAD.
Many of these pay quarterly which means a quick return of 2.0%-2.6% assuming the price rebounds back to previous levels. The amounts for FDUS, CSWC, and AINV include specials.
However, the stock price for each will decline on the morning of the ex-dividend date which could be a good time to BUY. Don't forget to take into account tax considerations - income vs. capital gains.
You need to own the stock at least one day before the ex-dividend date.
Upcoming Public Article:
As mentioned in previous updates, I will be providing all public Seeking Alpha articles to subscribers of BDC Buzz in case of paywall issues.
REITs get plenty of exposure on Seeking Alpha but this article discusses a sector that is currently yielding around 8% and continues to outperform.
BDCs have minimal investments in cyclical sectors, stronger credit performance than many private equity/debt funds during recessionary periods, maintaining and often improving dividend coverage while others are cutting.
BDCs will likely continue to outperform especially in a rising rate and/or inflationary environment.
Also discussed are using ETFs and ETNs in these higher yield sectors to improve diversification but also taking into account yield and total returns.
Upcoming Ex-Dividend Dates
As shown below, TSLX, FSK, GBDC, FDUS, CSWC, ARCC, OCSL, and NEWT are going ex-dividend followed by MRCC, NMFC, TCPC, OXSQ, TPVG, AINV, PFLT, PNNT, AINV, GAIN, and GLAD. Many of these pay quarterly which means a quick return of 2.0% to 2.6% assuming the price rebounds back to previous levels. The amounts for FDUS, CSWC, and AINV include special dividends.
Please keep in mind the following:
You need to own the stock at least one day before the ex-dividend date
The stock price for each will decline on the ex-dividend date and could be a good time to buy
Don't forget to take into account tax considerations - income vs. capital gains.
Upcoming Public Article
Seeking Alpha has extensive coverage of Real Estate Investment Trusts ("REITs") with plenty of articles each day sorted through special menu categories.
However, Business Development Companies ("BDCs") have easily outperformed REITs and are starting to get some "respect" for the reasons discussed in previous articles (see list below) including minimal investments in cyclical sectors, stronger credit performance than many private equity/debt funds and even many banks during recessionary periods, maintaining and often improving dividend coverage while others are cutting, etc.
Investors are starting to come around and we are now seeing pricing headed back to levels from early 2014, before the S&P and Russell removed BDCs from their indexes due to concerns cited by the indexes, including the distortion of expense ratios driven by AFFE rules. This was predicted and discussed last year in "New SEC Rules Could Improve Pricing For The BDC Sector".
Introduction to Business Development Companies ("BDCs")
Similar to REITs, Business Development Companies ("BDCs") are regulated investment companies ("RICs") required to pay at least 90% of their annual taxable income to shareholders, avoiding corporate income taxes before distributing to shareholders. This structure prioritizes income to shareholders (over capital appreciation), driving higher annual dividend yields that mostly range from around 6% to 10%.
As discussed in the Forbes article linked below, the BDC sector continues to grow and is still only around $52 billion in total market cap. This is relatively small compared to REITs but trading volumes are adequate for many of the larger BDCs. For more general information including some of the basic pros and cons of investing in BDCs, how they work as well as advantages, risks, and tax implications:
BDC Buzz Interview: Get To Know Business Development Companies
Comparison or BDC and REIT Returns Since 2019
The following tables assume that you purchased each position at the close of December 31, 2019, and sold at the close of June 7, 2021, collecting (not reinvesting) the dividends (includes paid, accrued, specials, and supplementals). I have included many of the BDCs that I cover as well as some others along with many of the larger/popular equity and mortgage REITs. Also included are the WF BDC Index ETN (BDCZ) which continually underperforms the average BDC due to poor allocations/exposure and fees, as well as the Vanguard Real Estate Index Fund (VNQ) and a Mortgage REIT Index (REM) which have outperformed many/most of the larger REIT components. I only included a handful of mortgage REITs as they typically underperform but have higher dividend yields and largely retail-owned used for trading as compared to BDCs and equity REITs which are mostly buy-and-hold positions. As discussed later, upcoming articles will discuss longer-term total returns as well as other stocks (not just the larger/popular ones).
The good news is that the top 9 performers were predicted/discussed in my previous articles including:
The following tables categorize each of the stocks in the previous table showing the average annual dividend yield and returns since 2019. The 'Other BDCs' include many of the lower performing companies that I do not actively cover including SLRC, SCM, OXSQ, BBDC, HCAP, and SAR. I do cover some of the lower return BDCs including FSK only due to being one of the largest in the sector especially after taking into account the merger with FSKR. It should be noted that BDCZ has quite a bit of exposure to many of the lower-performing BDCs including FSK and FSKR that accounted for over 15.5%. Please see the end of this article for my takeaways from these tables.
Vanguard Real Estate Index Fund (VNQ)
Most of my equity positions are BDCs of which I currently hold 17 positions but I also have a position in Vanguard Real Estate Index Fund (VNQ) which I only purchase during general market pullbacks with RSI below 30 including March 2020 as shown below:
I do not have the time/bandwidth to fully cover REITs and would rather keep it simple with VNQ which currently has 174 holdings including AMT, AVB, EQR, ESS, MPW, O, SPG, SUI, VTR, WELL, WPC, and WY that are among its larger holdings above 1%:
As shown in the following table, VNQ has outperformed many of the other equity REITs over the last ~15 months likely due to having many of the smaller REITs.
Upcoming Articles & Summary
As mentioned earlier, upcoming articles will discuss longer-term total return comparisons between additional (smaller and less known) BDCs and REITs as well as other considerations including risk and pricing volatility. Also, I will discuss some simple fundamentals including changes in net asset/book values and dividends. I will not spend much time on mortgage REITs as I do not see these as long-term holding positions that will likely not perform as well in a rising rate and/or inflationary environment.
The following are some quick takeaways from the previous tables that will also be discussed in upcoming articles:
If you are investing mostly for higher yield it is likely better to use higher quality BDCs versus mREITs.
If you are investing for higher total returns especially in a rising rate and/or inflationary environment it is likely better to invest in higher quality BDCs.
For the same amount of income with less risk, it is likely better to invest 50% less capital in BDCs at 8.0% for the same income as equity REITs at 3.1% to 3.4%.
Please do not use BDCZ to invest in the BDC sector as it has continually underperformed the average BDC with a lower yield. You could pick 5 random BDCs and easily have higher returns.
VNQ has much better diversification than BDCZ and might be an adequate alternative to investing in equity REITs for overall diversification.
Mortgage REITs are likely not good long-term holdings but can provide higher yields and returns if traded correctly. REM is lower yield but could also reduce the risk for that sector.
Investors can easily make higher returns by taking advantage of pricing volatility.