Unlock a Steady Stream of Passive Income
The past two years have been a dream come true for investors in U.S. equities. The S&P 500 index has surged an impressive 55.5% since the end of 2022. However, new investors seeking passive income have learned that dividend yields tend to fall when stock prices rise. The average stock in the S&P 500 index currently offers a meager 1.3% yield.
Discover Hidden Gems in the World of Business Development Companies
But there’s a silver lining. Business development companies (BDCs) have been flying under the radar, offering yields that far surpass those of traditional stocks. Ares Capital (NASDAQ: ARCC), PennantPark Floating Rate Capital (NYSE: PFLT), and Hercules Capital (NYSE: HTGC) are three BDCs that deserve more attention from income-seeking investors. With an average yield of 9.9% at recent prices, an initial investment of around $5,040 spread among them could secure $500 in annual dividend payments.
Ares Capital: A Reliable Track Record
Ares Capital is the largest BDC with shares trading on public markets. Its dividend payout has risen by 20% over the past five years, offering an 8.7% yield and a reliable track record. The company’s investment committee has lent out $156 billion over the past 20 years, with an average member having over 30 years of experience. This expertise is reflected in Ares Capital’s financial statements, which show a loan portfolio worth $25.9 billion with only 1.3% of loans on nonaccrual status.
PennantPark Floating Rate Capital: A Steady Performer
PennantPark Floating Rate Capital is another reliable BDC that could deliver a significant boost to your dividend portfolio. At recent prices, the stock offers a whopping 11.3% yield and convenient monthly payments. Despite the challenges posed by a lower-interest-rate environment, PennantPark has maintained its dividend payout every year since 2011. Its underwriting team has a proven track record of selecting borrowers capable of repaying their debts, with only 0.4% of the portfolio at cost on nonaccrual status.
Hercules Capital: A High-Yield Investment with a Twist
Hercules Capital takes a different approach, investing in innovative technology and life science companies. Its $3.6 billion portfolio includes many small investments, which can be unpredictable but offer huge potential upside. With a 9.7% yield at recent prices, Hercules Capital distributes a steady quarterly dividend, plus a supplemental distribution that varies. Despite the unpredictability of its equity and warrant portfolio, the BDC’s dividend is more reliable than it appears.
Boost Your Passive Income Stream
Adding shares of these BDCs to a diverse portfolio could be a great way to boost your passive income stream. With their high yields and reliable track records, Ares Capital, PennantPark Floating Rate Capital, and Hercules Capital are worth considering for investors seeking a steady stream of income.
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