Consider This High-Quality, 7.0%-Yielding BDC For Your Income Portfolio

Jun. 24, 2018 8:35 PM ETGolub Capital BDC (GBDC)4 Comments
Achilles Research profile picture
Achilles Research
34.71K Followers

Summary

  • Golub Capital BDC is a promising BDC income play.
  • GBDC has good credit quality and a positive NAV growth history.
  • Though shares sell for a premium to NAV, Golub Capital is a solid choice for income investors in the BDC sector, in my opinion.
  • An investment in GBDC yields 7.0 percent.

Looking for a high-quality business development company to add to your existing high-yield income portfolio? Golub Capital BDC (NASDAQ:GBDC) might be just the one. The business development company has interest rate upside, good credit quality, and special dividend potential. Further, the company has managed to grow its net asset value in the last several years, something not a lot of BDCs can say for themselves. Shares sell for a premium to the last reported net asset value, but the dividend has a good margin of safety. An investment in GBDC yields 7.0 percent.

Golub Capital BDC - Portfolio Overview

Golub Capital BDC is structured as a business development company, which means the company is required by law to distribute the majority of its taxable income to shareholders as dividends.

According to Golub Capital BDC's website, the business development company invests in "a diverse portfolio that includes senior secured, one stop, mezzanine and second lien loans and warrants and minority equity securities by investing approximately $5 to $30 million of capital, on average, in the securities of middle-market companies."

At the end of the March quarter, Golub Capital BDC had made 189 different investments with a combined value of $1.7 billion.

Source: Golub Capital BDC

Golub Capital BDC has a high degree of portfolio diversification. Its top ten investments account for just 20 percent of the BDC's investment portfolio.

Source: Golub Capital BDC

In terms of industry diversification, Golub Capital has a concentration in diversified/conglomerate services and healthcare/education/childcare which together represent 42 percent of the BDC's investments. Besides those industries, Golub Capital BDC is moderately diversified.

Source: Golub Capital BDC

The Fed just raised interest rates the second time in 2018, supporting investments with floating-rate asset bases. Golub Capital BDC has a large, variable-rate investment portfolio that can be expected to produce higher net

ChartGBDC Price to Book Value data by YCharts

This article was written by

Achilles Research profile picture
34.71K Followers
I am a dividend investor and look for undervalued investments in the stock market. I identify misunderstood and undervalued equity investments and hold those securities until their price approximates my estimate of intrinsic value. I am a long-term investor only. I am building a $100,000 high-yield income portfolio. I am running this portfolio as an experiment to see if long-term sustainable income can be generated from a diversified pool of high-risk, high-yield securities. I am willing to accept high risk in order to meet my performance goals.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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