Income investors who are looking for a little speculation are taking a closer look at private equity firms and business development corporations. Private equity firms invest in the equity and often the debt of private companies. Usually private equity firms are not available to the general public. Yet there are over 20 that are publicly traded on the NYSE or NASDAQ, with yields ranging from 3% to 14%. Several of these companies are registered as Business Development Corporations.
A Business Development Corporation, also known as a Business Development Company or BDC, is a publicly traded private equity fund. Many private equity companies are registered as BDCs for tax advantages, generally paying no corporate income tax because at least 90 percent of their income, profits, and capital gains are paid out as taxable dividends to investors.
TICC Capital (TICC) is a BDC that has been paying dividends quarterly since 2004, and yields 12%. The stock has a price to earnings ratio of 7 and a similar forward PE. The company invests in secured and unsecured senior debt, subordinated debt, junior subordinated debt, preferred stock, and common stock of both private and public companies, specializing in technology, media, telecommunications, and medical equipment. The company's investments include NetQuote, Inc., the web-based portal for insurance companies and consumers, and StayOnline, Inc. a provider of wireless high-speed Internet access solutions for the lodging industry, and Ai Squared, a manufacturer of assistive technology software which makes the screen magnification program ZoomText.
PennantPark Investment (PNNT) is a business development company that yields 10.4%, and has been paying quarterly dividends since June of 2007. The company invests between $10 million and $50 million in each of its portfolio companies, holding mezzanine debt, senior secured loans, and equity investments. The stock trades at 8.3 times current earnings and has a forward price to earnings ratio of 8.2. PennantPark invests in such companies as the hot tub and spa manufacturer Jacuzzi Brands Corp., Learning Care Group, Inc. which is owner of one of the largest early education and child care providers La Petite Academy, and VPSI, the world's largest vanpool service provider.
To see a list of over 20 high yield business development companies and private equity firms, which can be downloaded, sorted, and updated, go to WallStreetNewsNetwork.com. Several of these companies pay dividends monthly and more than a dozen have yields above 8%.
Disclosure: Author did not own any of the above at the time the article was written.