Earn An 8% To 10% Balanced Portfolio Yield Investing In America: Part 1

This article is the beginning of a series that will walk investors through building a balanced portfolio using BDC stocks, preferred shares, baby bonds and notes.
BDCs currently have an average annual dividend yield of 12% and are required to invest 70% of assets in U.S. private companies diversified by size and sector.
BDC stocks are currently pulling back from recent highs and investors should consider their baby bonds and preferreds currently yielding 6.5% to 9%.
BDCs will begin reporting results next month and investors should be watching closely and ready for a wide range of "winners" and "losers."

Business Development Companies ("BDCs") were created by Congress in 1980 to give investors an opportunity to invest in private small- and mid-sized U.S. companies typically overlooked by banks. The following slide from ARCC breaks out many of the requirements of the BDC/RIC structure including 70% of assets in U.S. private companies diversified by size and sector.

Source: ARCC Investor Presentation
Most BDCs typically do not directly invest in travel, entertainment, retail, restaurants, sporting event-related, airlines, oil/energy, etc., and if they do it's a small portion of the portfolio. Also, most BDCs have been focused on "investing at the top of the capital structure in businesses with limited commodity and cyclical exposure." The following was provided by ARCC but is similar for most BDCs:


Source: ARCC Investor Presentation
One of the many reasons that I like BDCs is the non-bank structure that allows them to invest at multiple levels of the capital structure. This gives them a wide range of tools during volatile periods such as this so that they can support portfolio companies for the long term while providing significant upside potential for BDC shareholders.
All higher-quality BDCs have credit platforms that have been carefully building their portfolios with a potential recession in mind.... Read more