Yield-Is-High Squad: 3 BDCs Paying Monthly Dividends
In the current environment of historically low interest rates, there may be only one thing that’s better than an investment that pays robust quarterly dividends: one that pays monthly dividends.
Gladstone Investment Corporation (NASDAQ: GAIN), Capitala Finance Corp (NASDAQ: CPTA) and Fidus Investment Corp (NASDAQ: FDUS) are three business development companies (BDCs) that pay monthly dividends, and all three yield at least 10 percent annually.
BDCs are a certain class of companies that invest in smaller businesses and are legally required to distribute at least 90 percent of their profits to shareholders. That means that many of these companies, like the three mentioned above, generate huge yields for investors.
So far in 2016, Capitala, Fidus and Gladstone shares are up 21.6, 16.5 and 6.6 percent, respectively. However, when distributions are factored in, those gains jump to 32.8, 22.7 and 13.9 percent.
Related Link: 10 REITs Yielding 10% Or More
If these types of gains and dividends seem too good to be true, there are a couple of caveats. First, a large part of your BDC distributions may be classified as income or non-qualified dividends for tax purposes. Those portions of your distributions will be taxed at your normal income rate, which might be higher than the capital gains rate.
Finally, it is important to research a BDC and its management prior to investing. BDCs can be risky investments due to the credit profiles of the businesses they back, and some BDCs take on heavy debt loads to fund their portfolio.
Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!
Disclosure: The author holds no position in the stocks mentioned.
See more from Benzinga
National-Oilwell Varco's 50-Day Moving Average Just Did Something It Hasn't Done Since 2014
Agnico Eagle Nears RBC's Price Target, Stock Downgraded To Sector Perform
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.