I just came across these two Seeking Alpha articles that analyze some potential ideas regarding building a portfolio of high yielding equities. I found them interesting and wanted to pass them along to my readers for further review.
While I am not placing any opinion on the stocks discussed, I get many questions regarding dividend-paying equities. If you have not done so, I would sign up to Seeking Alpha; it’s free for basic membership, and there are a number of writers who have extensive experience. The Sustainable Dividends blog on Seeking Alpha, for instance, has almost 23,000 subscribers.
I do believe that the two authors are on to something. Take a look at them and hopefully they can point you in the right direction if you desire to attain a higher yield on your total equity portfolio. I personally do not invest in any of the investments discussed, only because I can earn higher returns on my own. However, for those searching for yield without directly investing, these stocks may provide the answer.
While I am familiar with closed-end funds, REITs, and regulated investment companies (RICs), I do not have any real experience with business development companies (BDCs); but their premise is fairly straightforward. Similar to REITs, BDCs are a type of RIC and are required to distribute more than 90% of their profits and gains to shareholders. This avoids the BDC from paying corporate income taxes before distributing to shareholders. This structure prioritizes income to shareholders (over capital appreciation), driving higher yields that currently range from around 7% to 13%
According to Wikipedia, a BDC must subject itself to all relevant provisions of the Investment Company Act, which (a) limits how much debt a BDC may incur, (b) prohibits most affiliated transactions, (c) requires a code of ethics and a comprehensive compliance program, and (d) requires regulation by the Securities and Exchange Commission (SEC) and subject to regular examination, like all mutual funds and closed-end funds. BDCs are also required to file quarterly reports, annual reports, and proxy statements with the SEC. Some BDCs are publicly traded, while others are not.
BDCs are usually taxed as regulated investment companies (RIC) under the Internal Revenue Code. Like real estate investment trusts (REITs), as long as the RIC meets certain income, diversity, and distribution requirements, the company pays little or no corporate income tax. As a pass-through tax structure, RICs must distribute at least 90 percent of taxable income as dividends to investors.
BDCs are similar to venture capital (VC) or private equity (PE) funds since they provide investors with a way to invest in small companies and participate in the sale of those investments. However, VC and PE funds are often closed to all but wealthy investors. BDCs, on the other hand, allow anyone who purchases a share to participate in the open market. This feature often attracts money to newly public BDCs, thereby giving them a faster way to raise capital for investments than VC funds.