Dividend Cuts For The High-Yield BDC Sector

Business development companies, or BDCs, are almost finished reporting calendar year-end results, and this article discusses some of the items that investors should be watching when THL Credit (TCRD) reports later this week. Also discussed is the recent dividend cut for one of the worst-managed BDCs, Medley Capital (MCC).
Quick BDC Market Update
In December 2018, I purchased additional shares of multiple "oversold" higher-quality BDCs with risk-averse balance sheets prepared for a potential economic slowdown. As investors jump back into financial stocks, the average BDC has easily outperformed the S&P 500 so far in 2019, but still has an average dividend yield of around 10%. The average BDC continually outperforms high-yield corporate bond ETFs such as the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Bloomberg Barclays High Yield Bond ETF (JNK), and UBS ETRACS Wells Fargo Business Development Company ETN (BDCS). It should also be noted that the following table does not take into account returns from dividends.

Sources: SEC filings and www.bdcbuzz.com.
It is interesting to note that BDCs with exposure to collateralized loan obligations ("CLOs") such as PSEC, KCAP, and OXSQ, are not having a good year so far. Over the last 10 weeks, I have had focus articles discussing MRCC, GAIN, OCSL, CGBD, FSK, HTGC, TPVG, GSBD, TCRD, PSEC, and PNNT.
BDCs such as NMFC, GBDC, ARCC, TCPC, MAIN, and TSLX had better price performance near the end of... Read more