Monday, July 7, 2014

A 10% dividend raise from this BDC


Checking my brokerage account after the market closes I noticed some news across the screen of a dividend increase of 10% on its way from Fifth Street Finance Corp.  10% is significant amount, but this is after a couple dividend cuts that were larger than that.  I prefer not to take a cut in dividend income at all, but the effects were minimal at my age and hopefully temporary as I have more shares and a slight increase snapback in the rate.  I will gladly take ~82 cents or so more a month anytime.  Apparently the dividend cut was necessary to bring their dividend rates more closely aligned with Net Investment Income (NII).  I am glad management has taken the steps necessary and are confident enough to raise it back up a little bit.  The company has been focusing on safer loans which as a whole usually yield less then more riskier ones.  BDC’s may not be for everyone, but a couple authors in Seeking Alpha are worth reading and learning about them from.  The problem is some are safer than others and yields vary sometimes.  I like to focus on stocks that regularly increase their dividends.  On the other hand, I like some high yield plays that have growth potential also.  That way even if the stock is sideways and the dividend is static to higher I will get more dividends each month as well as shares from the Dividend Reinvestment Plans (DRIP). 
I am aware BDC's and REIT's are taxed at ordinary rates and not favorable tax rates so that makes it less of a SWAN investment for higher earners in nonretirement accounts.  Along with flucutations and having to balance portfolio loans and defaults it is not worth the headache for other investors to read up on and I don't blame them. It is risky and noone wants to get burned if they could avoid it.  That said, its been a good ride so far for me and I would like it to continue.
I am tempted to start a position in FSIC as they are planning on paying 2 special dividends this year in addition to their regular monthly payments.  We will see what I end up deciding as I am looking at some other companies like PG, WHLR, GE, MSFT, and CSCO for further consideration.
What’s on your radar?  Are BDC’s worth the risks to you?

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  1. Nice, at that rate the dividend will double 7 years from now! Looking good.


    1. Henry,

      It is always good to receive a higher amount of income for doing nothing. A lot of people certainly do a lot at work and receive a pay freeze or worse yet a pay cut or job loss. It is good to get a raise from them because they were kind of beaten up because they have cut the dividend a couple times in the last few years. They started another company not long ago as well. I don't think BDCs are investments for everyone, but they certainly have some attractiveness. I'd much rather deal with working on a portfolio or stressing about investment research than I do with working at the current job.

      Take care!

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