• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Financial Services

Consider Investing in BDCs for Current Income

Income investors who are comfortable with the risks should consider high-quality business development companies.
By ROBERT POWELL
May 12, 2018 | 12:00 PM EDT
Stocks quotes in this article: EQIX, CONE, DLR, COR, QTS

We, apparently, have been cursed to live in interesting times.

As the Fed raises short-term rates, things are getting better for investors seeking current income, says Scott Stone, the chief Investment Officer at Pentegra Services. "However, the markets today price risk as though there isn't any to speak of," he says.

For those who need income and can handle the risks, Stone suggests looking at high-quality business development companies (BDCs) where yields of 6% or more are common, with underlying loans or asset-backed deals that have security in collateral and liens.

How might one go about finding and buying high-quality BDCs?

For starters, follow the writings of Jonathan Bock, director and senior equity analyst at Wells Fargo Securities. Bock specializes in BDCs, has actively followed the BDC space since 2006, and is the chief author of BDC Scorecard, a quarterly research publication.

From Investopedia: A business development company (BDC) is an organization that invests in and helps small- and medium-size companies grow in the initial stages of their development. Many BDCs are set up similarly to closed-end investment funds and are typically public companies whose shares are traded on major stock exchanges, such as the American Stock Exchange (AMEX), Nasdaq and others.

Others also say now is tough market for retirees looking for current income. "Corporate bond yields are nearly at inflation rates, and I believe corporate defaults are going to increase over the next year, pushing total return below CPI," says Steven McClurg, the chief investment officer at ARCA.

McClurg also believes the yield curve will continue to flatten as the short end rises, making it difficult to safely invest against duration risk.

"We are due for another recession, which I believe will be induced by corporate defaults sometime next year," he says. "And if you look at equity markets, they typically drop 40% when defaults are double digits, so there is a danger in dividend-paying stocks."

The only safe place, says McClurg, might be government-backed mortgage-backed securities, or even real estate, at the moment. "REITs have been hit hard, but I don't think they are entirely out of the woods," he says. "Retail REITs could suffer more in a recession, so I believe they should be chosen wisely."

What REITs might investors consider? "I like data center REITs given the increased investment in [artificial intelligence] and cloud," says McClurg.

Data center REITs include Equinix (EQIX) , CyrusOne (CONE) , Digital Realty Trust (DLR) , CoreSite Realty (COR) , and QTS Realty Trust (QTS) .

Retirement is coming. It's never too early -- or too late -- to plan, save and invest for the retirement you want and deserve. Let TheStreet's new premium subscription newsletter, Retirement Daily, give you the insider's edge on how to maximize and protect your most important investment, your retirement savings. Learn more about Retirement Daily and get a free trial subscription.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | U.S. Equity | Financial Services | Dividends | How-to

More from Financial Services

This Company Grows Like a Tech Stock, but Is Bargain-Priced

Paul Price
Sep 29, 2023 7:00 AM EDT

Let's see why Axos Financial is an excellent play.

Doug Kass: My Real Money Pal Just Picked Berkshire for Q4. I Disagree

Doug Kass
Sep 25, 2023 2:34 PM EDT

Here's why I'm shorting the very stock that Stephen 'Sarge' Guilfoyle picked as his stock for the remainder of the year.

Holders of Discover Financial Are Discovering the Stock Is Heading Lower

Bruce Kamich
Sep 21, 2023 1:02 PM EDT

Let me show you what I am seeing and the key price levels to watch.

Charles Schwab Doesn't Have Much to Stand On

Bruce Kamich
Sep 15, 2023 3:03 PM EDT

I don't see a bottom in sight when looking at these charts.

Don't Bank Too Much on Bank of America

Bruce Kamich
Sep 15, 2023 10:14 AM EDT

The charts are looking vulnerable.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:13 PM EDT BRUCE KAMICH

    8 Trading Rules from T. T. Hoyne

    You just read the header for this missive and prob...
  • 08:42 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    How Elite Traders Make Big Profits
  • 02:58 PM EDT BRUCE KAMICH

    Classic Trading Rules From Bernard Baruch

    Bernard Baruch listed the rules (below) in his aut...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login