We done shot all the slow rabbits
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!).
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