Interest Rates Give Business Development Companies a Boost
Rising interest rates have been a welcome development for business development companies (BDCs) in recent quarters. This is because the majority of their debt investments are tied to floating rates, while a significant portion of their debt is fixed-rate. As a result, BDCs have seen their net interest income increase, providing a boost to their bottom line.
A Key Benefit for Capital Southwest
One BDC that has benefited from this trend is Capital Southwest. The company’s investment portfolio is comprised of a mix of floating-rate and fixed-rate debt, with a significant portion of its debt investments tied to floating rates. As interest rates have risen, Capital Southwest has seen its net interest income increase, providing a boost to its dividend payments.
A Portfolio Built for Income
For investors looking for solid high-yield income, a portfolio of BDCs like Capital Southwest can be an attractive option. By investing in a mix of floating-rate and fixed-rate debt, BDCs can provide a relatively stable source of income, even in a rising interest rate environment. Additionally, many BDCs have a history of paying consistent dividends, making them a popular choice among income-focused investors.
The Importance of Dividend Coverage
When evaluating BDCs as potential investments, it’s essential to consider their dividend coverage. This refers to the company’s ability to generate enough net interest income to cover its dividend payments. A BDC with strong dividend coverage is more likely to maintain its dividend payments over time, even in the face of rising interest rates.
A Compelling Investment Opportunity
In conclusion, the recent rise in interest rates has been a positive development for BDCs like Capital Southwest. With their mix of floating-rate and fixed-rate debt, these companies are well-positioned to benefit from rising interest rates. For investors looking for solid high-yield income, a portfolio of BDCs can be an attractive option.
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