Yield-Is-High Squad: 3 BDCs Paying Monthly Dividends

In the current environment of historically-low interest rates, there may be only one thing that’s better than an investment that pays robust quarterly dividends: one that pays monthly dividends.

Gladstone Investment Corporation GAIN, Capitala Finance Corp CPTA and Fidus Investment Corp FDUS are three business development companies (BDCs) that pay monthly dividends, and all three yield at least 10 percent annually.

BDCs are a certain class of companies that invest in smaller businesses and are legally required to distribute at least 90 percent of their profits to shareholders. That means that many of these companies, like the three mentioned above, generate huge yields for investors.

So far in 2016, Capitala, Fidus and Gladstone shares are up 21.6, 16.5 and 6.6 percent, respectively. However, when distributions are factored in, those gains jump to 32.8, 22.7 and 13.9 percent.

Related Link: 10 REITs Yielding 10% Or More

If these types of gains and dividends seem too good to be true, there are a couple of caveats. First, a large part of your BDC distributions may be classified as income or non-qualified dividends for tax purposes. Those portions of your distributions will be taxed at your normal income rate, which might be higher than the capital gains rate.

Finally, it is important to research a BDC and its management prior to investing. BDCs can be risky investments due to the credit profiles of the businesses they back, and some BDCs take on heavy debt loads to fund their portfolio.

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Disclosure: The author holds no position in the stocks mentioned.