Private Energy Investing Via BDCs

While most of investor’s energy sector allocation is in large cap companies like Chevron

or exchange traded funds like the Vanguard Energy ETF

, diversification and be dividends can be found in smaller private energy firms. Retail investors can access these private and micro-cap firms via Business Development Companies. At their core, Business Development Companies (

) makes loans to firms that are too large to tap their local bank, but are too small for major Wall Street investment banks. BDC’s can function as a lender of last resort and often get an equity kicker in addition to interest payments. In exchange for favorable tax treatment, similarly to REITs, BDCs are required to pay most of their earnings to investors as dividends. BDCs in the energy sector, allow retail investors to bet on small and micro cap firms, while receiving a nice dividend. Here are two picks for further due diligence. NGP Capital Resources Company

focuses on a wide swath of energy related investments, including midstream, power generation and alternative energy companies. Shares of NGP currently yield 8.9 percent. Yielding 7.3 percent, Tortoise Capital Resources

current loan portfolio sits at 57 percent in midstream pipeline companies, with the remaining in aggregates and coal.