Why Investing in Business Development Company Stocks is a Smart Move
Investing in the stock market can be daunting, but it can also bring in great returns. While most people may invest in the standard blue-chip stocks, there are other investment opportunities that offer excellent returns. One such opportunity is investing in Business Development Company (BDC) stocks. In this article, we’ll look at the reasons why investing in BDC stocks is a smart move.
What are Business Development Companies?
Business Development Companies are corporations that invest in and lend to small and mid-sized businesses. They are similar to private equity funds, but they are publicly traded companies that anyone can invest in. BDCs are required to distribute at least 90% of their taxable income to their shareholders. This makes BDCs attractive to investors, as they offer high dividend yields.
High Dividend Yields
BDCs are known for their high dividend yields. BDCs are required to distribute most of their earnings as dividends to their shareholders. This can make BDCs a great source of passive income for investors who are in it for the long haul. In fact, BDCs offer a dividend yield that is significantly higher compared to other asset classes, averaging at around 8% to 11%.
Diversification
Investing in BDC stocks also brings diversification to an investor’s portfolio. BDCs generally invest in a diversified pool of small and medium-sized companies. Investing in these stocks provides exposure to a wide range of industries and sectors, reducing the risk of a concentrated portfolio.
Less Volatility
BDC stocks have shown less volatility compared to other stocks. Part of this has to do with BDC’s dividend distribution requirement. As mentioned, BDCs are required to distribute at least 90% of their taxable income to shareholders. This attracts conservative investors who are looking for a reliable income source.
Long-term Investments
BDC stocks are well-suited for investors who are in it for the long haul. It’s not uncommon for investors to hold onto BDC stocks for a decade or more. This allows investors to reap the benefits of compounding returns and high dividend yields, while enjoying a diversified portfolio.
Conclusion
Investing in BDC stocks is a smart move for investors looking for high dividend yields, diversification, less volatility, and long-term investments. While investing in BDCs may not bring in quick returns, it offers a reliable source of passive income for investors looking to create a diversified portfolio. So, consider adding BDC stocks to your investment portfolio and enjoy the benefits of high dividend yields and a more diversified portfolio.
