BDCs offer attractive income opportunities since they are required to pay out 90% of income in form of dividends, a structure similar to what income investors find with real estate investment trusts (REITs).
BIZD, which charges 0.4% per year, holds 29 stocks, including Ares Capital (NasdaqGS: ARCC), American Capital (NasdaqGS: ACAS) and Prospect Capital (NasdaqGS: PSEC). BDCs, including some BIZD holdings, are contending with slack earnings growth.
“This suggests the cost of funding portfolio investments has also increased considerably, which is consistent with anecdotal evidence that competition among BDCs as well as private equity firms to fund portfolio companies is intense, and targets have been garnering increasingly rich valuations and generous credit terms,” according to AltaVista. “As a result of scant growth in earnings, dividends paid out to investors of firms in BIZD were flat between 2010 and 2015E (actually, they did increase a little in the first few years of the period but have fallen back). Consensus forecasts suggest dividends will be flat in 2016 as well.” Making Sense of Acquired Fund Fees in BDC ETFs]
Charts Courtesy: AltaVista Research