August 16, 2010: High Yields/Moderate Risk/Excellent Theme
I read an article today written for the "old media" by financial observer Malcom Berko. I enjoy Berko's work, as he rarely hedges an opinion and takes to task those company managements that do not consistently serve the interests of their owners (shareholders). He has been lurking about the investment forest long enough to identify the dangers within.
Searching for a high yield investment that carries a solid theme, a rather obscure sector of the market was brought to my attention - business development companies. Business development companies are similar in some respects to a REIT in that they must pass on 90% of their income to shareholders. In addition BDC's may not place more than 5% of assets in one company, can't own more than 10% of the voting stock and can't invest more than 25% of their assets in companies that are considered to be in the same industry. This provides a modicum of diversification.
The current allure is that with loans being hard to come by for small companies, more appear to be opting for funding through companies in the business development area. BDC's are making good loans when banks can't, or won't.BDC's generally loan to companies where they can exert influence over the direction of the enterprise, earning consultant fees and/or gaining representation on the board of directors to protect their loan quality.
Here are three recommendations from Mr. Berko. I have looked into the companies and agree with the threesome.
Ares Capital (ARCC),trading at $14.26/share with a $2.7b cap and a 9.82% yield.
PennantPark Investment(PNNT),trading at $10.05/share with a $318m cap and 10.35% yield.
Apollo (AINV) trading at $9.20/share with a $1.8b cap and a 12.17% yield.
As with many securities, if a full blown double dip recession occurs, all bets are off. Investors should know that brokerage ratings on these stocks are all over the map.
Searching for a high yield investment that carries a solid theme, a rather obscure sector of the market was brought to my attention - business development companies. Business development companies are similar in some respects to a REIT in that they must pass on 90% of their income to shareholders. In addition BDC's may not place more than 5% of assets in one company, can't own more than 10% of the voting stock and can't invest more than 25% of their assets in companies that are considered to be in the same industry. This provides a modicum of diversification.
The current allure is that with loans being hard to come by for small companies, more appear to be opting for funding through companies in the business development area. BDC's are making good loans when banks can't, or won't.BDC's generally loan to companies where they can exert influence over the direction of the enterprise, earning consultant fees and/or gaining representation on the board of directors to protect their loan quality.
Here are three recommendations from Mr. Berko. I have looked into the companies and agree with the threesome.
Ares Capital (ARCC),trading at $14.26/share with a $2.7b cap and a 9.82% yield.
PennantPark Investment(PNNT),trading at $10.05/share with a $318m cap and 10.35% yield.
Apollo (AINV) trading at $9.20/share with a $1.8b cap and a 12.17% yield.
As with many securities, if a full blown double dip recession occurs, all bets are off. Investors should know that brokerage ratings on these stocks are all over the map.
posted by T @ 8/15/2010 01:24:00 PM
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