I am sending copies of this message to each of the message boards of the BDC’s I either own or am interested in buying.
My first BDC was ACAS. I had done very well with coal and oil stocks but felt I should start looking for dividends – WOW, what a start. I went in at 24+ and watched it go to less than a dollar. I bought more – some at almost the low, and held on hoping for the best. In August, 2009, I gave up and sold out at $3.04 and put it all in ARCC. That helped ease the wound somewhat.
I’m hoping to get some feedback on my attempt at DD on the stocks in this message.
After my naïve entry to BDC’s, I decided to do my own amateur analysis.
This is what I did:
1. I charted 22 BDC’s for 3 and 6 mos, and glanced at longer periods. After weeding out some of the more obvious losers, I started gathering more info.
2. I made a spread sheet for amount of capital , for NAV, dividends, number of shares, and for current share price, and the current ratio of share price to NAV, and yield.
3. After studying all this, I eliminated 17 of the starting group. Some were smaller than I thought was promising, some because I didn’t like the investing strategies, and others that seemed to be struggling and had a lower growth rate or were declining, or whose dividends seemed a problem.
My surviving selections were (alphabetically):
AINV, ARCC, BKCC, HTGC, PNNT, PSEC, AND TICE.
I own ARCC, AINV and HTGC, but am looking to expand my portfolio with the proceeds of a house I’ve sold, and possibly switch out of or reduce some of my current holdings..
I’m a “newbie” to message boards, and I apologize if I have wasted anyone’s time, but I would be very interested in any feedback on my selections or my analysis from anyone who might have the patience to respond.
Re BDC's I own ARCC,CODI,HTGC and PSEC . I have "weeded out" BKCC,TCAP,PNNT and TICC because of one or more of these factors: low daily volume,short history of dividend payments and dividend not high enough. REGARDING BKCC and PSEC,they will probably make a secondary offering of stock in which case I would add to my PSEC after the initial hit. As to AINV, it is an old BDC,spun off private equity and I am just not sure about the quality of their holdings.
Just one guy's thoughts.
Thank you all for your replies.
Yes, a typo slipped in – it is TICC not TICE.
ACG was mentioned as a good buy with a dividend of 7.2% at 8.26 – also selling between 4-5% above the NAV which is very encouraging. However, I prefer the basic concept of BDC’s. Briefly, borrow at x rate and loan at x+ rate. The risk is in the skill of the investment manager – ACAS is a good example of unwise investments. The BDC’s I am looking at have managed to survive the latest severe recession and still pay dividends. Any given level of BDC investment skill is subject to the economic influence on small corporation’s success. A rising tide, etc., etc. I like the future of small businesses.
Everyone has their own investment strategy. In the past, I have made good capital gains buying corporate bonds with borrowed money. Also in picking oil and coal at good times. Now I need maximum dividend returns at reasonable risk levels, and I like the BDC business plan.
I am not smart enough to try to pick a specific time to buy or sell a stock. I bought ARCC at 9.74 the day before they announced the stock offering at 9.25. Now it is above 12.50 and I have two dividend payments.
Also,I like the idea of having a diversified portfolio. Different BDC’s focus on different industry segments, and also in the type of loan, or equity participation they favor. Since I am also not smart enough to know which of the investment strategies is best, I can at least spread my chances of success.
I am interested in the comments from zincomez – can you be more specific on your advice not to buy BDC’s?
Good hunting and Happy New Year!
During the recession of 2001-2002, ACAS actually raised its dividend and ALD maintained its own dividend. It took the worst economic crisis since The Great Depression to undo them. That said, any BDC which could survive this economic malaise in reasonable shape should be able to do fine in ordinary future recessions. That would include ARCC of course.
First, what would have saved you the most $, damn chasing the divvy, is to use position size and stop loss. Take you entire capital total and determine what you are willing to lose first, before the trade. That amount dictates how much you buy. Then set either a real or mental stop loss. Once the stock drops a certain % below your buy price, say 8-10%,sell. Also, don't ever buy a whole position at one time, buy in 3-4 lots to achieve your desired size. The gist - worry about minimizing your risk more than maximizing your profits.
Second, why the need to feel like you have to have so many different BDC's? Trust your DD and go with your gut. Your not going to make a lot of money otherwise.
Lastly, I'm not familiar with the other BDC's you mentioned but I got into ARCC at about $4 and have held it since. Although BDC's can be risky, I think ARCC's portolio is well diversified, like it should be. Their top compositions are health care, education, restaurant/food service, and bev/food/tobacco. They are also geographically diversified, and all in North America. They changed their threshold for clients from $50 MM to $100 MM which I take as a positive sign. They've made $214M in investments since 9/30. They rate approx. 7% of their portfolio will not repay in full. One thing however, is they do have $271K in debt coming due in Dec 2010, which will have to be refinanced.
Other high divvy payers I've had success with in the past include FRO, SFL, NLY, ANH, and several canroys. I did get burned on Paramount Energy, however, (which I thought was my surest and safest thing at the time-geez). My point is there is more than one way to skin a cat, pardon the expression. Happy investing!
to amobear -- thank you for your helpful info. I looked at FRO and SFL, and I don't know enough about shipping to buy in, but I sure like their divs. NLY and ANH are also great income producers, but again, I don't know enough about mortgages, etc. to take a risk.
Robby, Thanks for your hard work and posting it, I have been sorting through these bdc's as well and your work was appreciated and used, how cool you posted it.
One thing I have learned in my short 42 years is if you want good high divs., let your beneficiaries worry about the capital gains. Literally. At some point it seems , Iam not interested in big price moving stocks and happy with 10 % div. If a guy socks in say 100k into some good div. funds, heck $1000 to 1200 a month is damn good income...I guess the future of these business is something one has to watch tho. I am particularly suspect that a number of these BDC's all essentially have the same name, Apollo, Ares, Hercules....as in they are from the same "dreamteam"???. I don't know , but maybe more looking may yield some answers. Looking objectively, I find it quite unusual that they have all greek god references..for names..coincidence?, I doubt it.
I am always looking for more good div investments and I have traded Nuveen Funds, particularly , JRS for many , many years. This thing used to pay a whopping div and now it's settled down to the rest of the world. Nuveen seems to have a decent track record, they have some good divi investments, prices were better of course months ago, when bottom feeding was on most of our minds? They seem to be a solid outfit with some handsome divs... W.
Put all the money you have into a bond fund such as ACG. ACG pays a dividend of $.60 a year and the stock price was $8.28 today. It makes monthly distributions of 0.05.
Use the dividends from ACG to buy your stocks in BDC's. Reinvest your BDC dividends.
For God's sakes don't put your initial capital into BDC's.
I doubt if I ever buy more stock in BDC's.
If PNNT drifts below $8 again you may want to pick some up. I have owned PNNT for a while. It is a relatively young REIT which is both good and bad. It may not have as many legacy issues as some others, but also does not have as much of a history to guide how good their underwriting truly is. I am long 1300 shares of PNNT, but really waiting to see how their portfolio holds up over the next quarter or two before would buy more. Their annual dividend looks solid at $1 and may go up over time. At $8 to yield 12.5% the risk reward seems reasonable.