BDCs near removal from Russell indices

The May 15 deadline for the SEC to change BDC's fee-reporting standards has come and gone with no action, meaning the sector's stocks will be removed from Russell's indices on June 27. A tick higher in the struggling sector since May 15 suggests maybe investors have discounted the news.

Looking for what to buy now, the team at Wells has put together an Adjusted Cash Flow Coverage metric. From Wells: "It is important for investors to discern which BDCs are overly reliant on fee income as a percentage of total revenues, which BDCs are not covering their dividend and which BDCs book meaningful non-cash income such as PIK."

The sector adjusted cash flow coverage average is 81%. Among those coming in above: GLAD, HRZN, TCAP, TCPC, HTGC, GBDC, ARCC. Among those below: TPVG, BKCC, PNNT, MCC, FSC. Struggling the most of late, Prospect Capital is pretty close to the sector average at 79%.

Full list here


Comments (10)
  • WmHilger1
    , contributor
    Comments (1714) | Send Message
    What, if anything, does this mean to income investors who don't so much care about the stock valuations as they do about the income?
    23 May 2014, 01:05 PM Reply Like
  • HVAC52
    , contributor
    Comments (873) | Send Message
    It means I will be buying more should prices drop.
    23 May 2014, 03:44 PM Reply Like
  • kyanaron
    , contributor
    Comments (130) | Send Message
    If the stocks are not listed on the Russel, they're listed on the NYSE aren't they? I have TCAP and today's volume was near 200K and also long MCC with 700K volume. Because it's not listed with the Russel, how does this effect me?
    23 May 2014, 06:23 PM Reply Like
  • Rod Willmot
    , contributor
    Comments (81) | Send Message
    Russell (as referred to here) is not a stock exchange, it's a set of indices (like the S&P 500) that are used in determining the components of certain ETFs (among other things). It can be a big deal for a stock to be added to, or removed from, a major index. For example, when a stock is added to an index the issuers of ETFs that track that index will start buying that stock till they reach the desired percentage of their ETFs - thereby driving the price higher, or at least supporting it. Conversely, when a stock is removed from an index, ETFs that formerly held it will have to sell it off, driving the price lower. This is what is expected to happen to BDCs removed from a given Russell index, since they will be sold off from ETFs that track that index.
    24 May 2014, 01:28 AM Reply Like
  • WmHilger1
    , contributor
    Comments (1714) | Send Message
    And I, who buys stocks for the dividends, will be buying, even though those lower valuations of the BDC stocks that I already own will reduce the overall current "Paper" value of my portfolio.


    I am unchanged in my opinion that BDC stocks are best kind to own. By doing so, I participate in the financial development of the smaller American businessmen. The BDC companies provide funds for small to medium sized companies to fund their operations, purchase supplies and new machinery, and pay their employees (and themselves). Thus, I gain dividend income from those companies while also encouraging the growth of the true Americans, the small to medium entrepreneurs. We help each other!!!!!!!!
    24 May 2014, 09:21 AM Reply Like
  • surfgeezer
    , contributor
    Comments (10024) | Send Message
    Yes WM and you will by definition be getting a lower cost basis and higher yield from now on. Because prices ALWAYS change, it means later, you could sell your higher priced shares when the price moves higher if you were uncomfortable with % of Income coming from BDCs. Something else will not be in favor, rinse, repeat.


    This is the exact same thing BDC buzz said in his articles on the sector, weeks ago. BTW.
    24 May 2014, 06:17 PM Reply Like
  • WmHilger1
    , contributor
    Comments (1714) | Send Message
    And the problem of getting higher yields on lower cast bases is ??????????


    As I've said many times before, the only time the lower cost basis means much, if anything to me, is when I BUY the stock. I am in the stock markets for the dividend yields! I get over 10% AVERAGE yields (6-digit annual income on a 7-digit portfolio) on my ENTIRE portfolio. I can live with that for the rest of my days on this Earth. I may switch if bank CD rates ever get back into the 15% to 20% range, but I don't expect that to happen again in my lifetime.


    BDC Buzz has some good advice at times, but he is really more a DGI person tthan a DIYC (Dividend Interest Yield Collection) person. I agree with him at ttimes and not at others. After all, he is much younger than I am, and still in the accumulation phase of his investing. I am in the income collecting phase.
    24 May 2014, 08:48 PM Reply Like
  • Urbannek
    , contributor
    Comments (1508) | Send Message
    Totally agree. You are also supporting job creators who are probably doing new and innovative things with their businesses.
    25 May 2014, 06:51 PM Reply Like
  • Urbannek
    , contributor
    Comments (1508) | Send Message
    Totally agree Wm. Everything I read is just part of my research. People do not realize that investors have to make their own decisions as everyone's situation is different. What we read on SA is just part of due dilligence.


    I only hope that when I am your age I will be doing as well as you in all ways.
    SA is full of wise elders in my opinion and I am honored to learn from them.
    25 May 2014, 07:06 PM Reply Like
  • josve
    , contributor
    Comments (14) | Send Message
    It's in it's out who cares, where are you going to get this kind of monthly income from a company (PSEC) with great management and a proven track record. I'll keep adding to my 6.0 shares.
    24 May 2014, 05:07 PM Reply Like
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