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Business Development Companies (BDCs), such as BlackRock TCP Capital Corp. (TCPC), Crescent Capital BDC (CCAP), and PennantPark Floating Rate Capital (PFLT), are now offering high dividend yields, reaching nearly 13%. TCPC has a dividend yield of 12.9%, CCAP at 11.5%, and PFLT at 11.8%. BDCs were established to provide loans to small businesses while returning at least 90% of taxable income back to shareholders in the form of dividends. Investors can access these financial instruments with minimal initial investments starting from as low as $8.
TCPC’s portfolio includes 146 companies, predominantly in first-lien debt (83%), while facing challenges like a 12.6% rate of non-accruals. Crescent Capital BDC manages investments in 191 companies, primarily in first-lien debt (91%), but has encountered credit issues leading to a 23% discount to NAV. PennantPark focuses on midsized companies, predominantly in floating-rate first-lien debt, facing a tightly covered dividend with a 97% payout ratio in fiscal 2024.
Investors should consider the financial stability and screening of these BDCs due to fluctuating interest rates and the inherent risks associated with their portfolios. For 2025, TCPC, CCAP, and PFLT indicate yields that could attract investors looking for income-based strategies.
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