Banking & Finance

4 High-Yield BDCs to Buy Before Earnings Are Reported

Even though yields have continued to stay low, many high-yield investors that also look for growth have been disappointed in the performance of various high-yield investment vehicles. In a new report, JPMorgan sees the market for the top high-yield business development companies (BDCs) remaining smooth, as first-quarter results should be solid.

The JPMorgan team points out that the BDCs with energy loan exposure probably had a better quarter, as the price of crude oil has firmed and hit the highest close Wednesday in some time. The analysts continue to favor the BDCs with higher liquidity, as they are best positioned to take advantage of new investment opportunities.

Here are the four that are rated Overweight at JPMorgan and pay high dividends: Ares Capital Corp. (NASDAQ: ARCC), Fifth Street Finance Corp. (NASDAQ: FSC), PennantPark Investment Corp. (NASDAQ: PNNT) and Solar Capital Ltd. (NASDAQ: SLRC).

Ares Capital

This leading specialty finance company provides one-stop debt and equity financing solutions to U.S. middle market companies, venture capital backed businesses and power generation projects. Ares Capital originates and invests in senior secured loans, mezzanine debt and, to a lesser extent, equity investments through its national direct origination platform. Ares Capital’s investment objective is to generate both current income and capital appreciation through debt and equity investments, primarily in private companies.

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The JPMorgan team believe the strength of company’s origination platform, sizable balance sheet and ample liquidity position it favorably in a very competitive investing environment. They also believe that with the current tight spread environment, Ares Capital has the scale and industry relationships to continue to make competitive, high-credit-quality investments. That is very solid for shareholders.

Ares shareholders are paid a very competitive 9.8% dividend. The JPMorgan price target for the stock is $18. The Thomson/First Call consensus price target is at $18.27. Shares closed Wednesday at $17.15. The company will report earnings on May 4.