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EnigmaDude (94.14)

We done shot all the slow rabbits

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20

May 06, 2011 – Comments (4) | RELATED TICKERS: GAIN , MCGC , PNNT

From an article on SA regarding Business Development Companies (BDCs). I'm a fan of BDCs in my IRA because they pay decent dividends and should continue to offer some share price appreciation over the next 5 to 10 years or more while (hopefully) continuing to increase the dividends.  But most of the really good deals are gone, at least for now.

In 2009 and well into 2010, there were BDCs whose assets consisted almost entirely of cash and corporate loans trading at discounts of 30 or 40 percent below book value. This offered the promise of enormous yield on the price paid and ultimate price appreciation as well due to the hunger of investors for yield instruments.
The opportunities to buy BDCs below book value have narrowed considerably and now we are in a situation in which BDCs trading below book have to be scrutinized to determine whether there is, indeed, a very good reason that they are trading below book. The deep discounts are gone and an investor has to determine whether the discount provides a sufficient cushion against unpleasant surprises in the future.

After doing a fair bit of poking around and looking at value metrics like discount to NAV, P/B, and dividend payout ratios, I bought some shares of GAIN and PNNT.  Recently added to PNNT after their latest positive earnings report, and now thinking about increasing my position in GAIN.

Any comments from the audience?  Positive or negative opinions are encouraged (as long as alstry or Bin Laden are not part of the discussion!).

4 Comments – Post Your Own

#1) On May 06, 2011 at 4:43 PM, catoismymotor (33.80) wrote:

After giving a quick look at the stats I admit to liking what I see of both of them. PNNT is very sexy with that 9% dividend. You could be onto something.

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#2) On May 07, 2011 at 6:47 AM, Eudemonic (66.75) wrote:

I see GAIN pays dividends monthly. Is that common practice for BDC's ?

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#3) On May 08, 2011 at 11:29 PM, EnigmaDude (94.14) wrote:

Actually, it is the only BDC that I am aware of that pays a monthly dividend, which is a nice benefit. I also own shares of AINV and used to own ACAS. 

I found an excellent article that provides more reasons why to invest in BDCs for anyone interested in further research:

 http://bdcreporter.com/primer-on-bdc-industry/why-invest-in-bdcs/

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#4) On May 09, 2011 at 12:28 AM, GunSlinger24 (< 20) wrote:

I'm 24 and kinda new to the whole investing scene.  I am looking for new stocks to put money in and this price/dividend is appealing to me.  Is it a high risk for a beginner or a relatively safe bet?  I know I could invest in a mutual fund but I already have a 403b and Roth IRA so now I am putting money in individual stocks which I find most entertaining... Any advice is appreciated.

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