Business development companies, or BDCs, offer fat dividends and give small investors exposure to private equity plays. Even Goldman Sachs is getting into the game. (April 4, 2013)
BBC. Wall Street shorthand for business development companies have become a darling of investors looking for fat dividends. -- more than thirty BBC's already trading on the market. Goldman Sachs is even decided to get in the game. In the red hot world alternative investing. BDC's stand out. Created by congress to fund the growth small businesses BBC's must invest at least 7% of their assets in private or thinly traded public companies. Companies too small for the high yield debt market and too risky to get bank financing. BDCs also dole out advice in office take stakes in the company. These small companies and repay the loans creating a steady cash flow. The most BDCs are not required to pay corporate taxes as long as at least 90% of their earnings are paid out as dividends. And that helped drive yields as high as 12%. More than triple what you get for regular stocks. While -- author of the new book. The alternative cancer. They're handling the junior varsity of private equity for -- that this is a way that. Normal investors average investors and accredited investors can get in and invest in. The kinds of high yield loans. To private equity firms typically made. To corporations. And get the yield from those wanted very difficult to do otherwise. In the most recent leg of the market's bull run he PCs have outperformed the S&P five. The Wells Fargo business development companies and it has risen more than 19%. In November beating the -- and he's 16%. On the downside there's always that downside you're extremely volatile. When the economy's hours PCs have a tough time paying back loans. Bad news for the stocks. Apollo Investment. One but he giant Apollo management. Plunged more than 90% fourteen years starting in 2007. Before finally attempting a recovery in 2009. Goldman says that it investments is BBC were rated -- deep below investment grade. Keep in mind dividends are taxed at ordinary rates rice's advice. Stick with the big names you might as well play along with the varsity. In private equity people like Apollo black -- KKR. That that all for a BBC firms say they won't they provide the management to some of these speedy bird seed -- which are publicly traded and they know. A lot. About how corporations behave in different kinds of economic cycles and so they're gonna be Smart about the kinds of loans and companies that they make those loans to. Harry don't match editor of dividend detective dot com also says now's a good time to invest in BDC. As long as the US economy is growing and the -- keep rates low he recommends can cap financial main street capital and Triangle Capital. Because of their promising future cash flow that dividends at high return. One red -- stay away from BBCs that are not publicly traded lack liquidity. And these are high.