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BDCs Vs. REITs: Comparing Returns For Higher-Yield Investors


  • BDCs continue to easily outperform with only a handful of REITs providing investors with annualized returns of over 10% since 2019.
  • Most mortgage REITs and many of the equity REITs have had negative stock price performance over the last 21 months.
  • For the same amount of income with less risk, it's better to invest 50% less capital in BDCs at 8.8% compared to equity REITs at 3.0% to 3.5%.
  • BDCs have been deleveraging, reducing fixed borrowing rates, shifting portfolios into secured assets in non-cyclical sectors with stronger covenants, and improving net interest margins.
  • These changes have resulted in much stronger balance sheets ready for anything from an economic recession to an overheated economy driving inflation and higher interest rates.
  • Looking for a portfolio of ideas like this one? Members of Sustainable Dividends get exclusive access to our model portfolio. Learn More »

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As discussed in "This High-Yield Sector Continues To Pummel REITs" and "REITs Continue To Underperform BDCs," Business Development Companies ("BDCs") easily have outperformed Real Estate Investment Trusts ("REITs") and are starting to get some "respect" for the reasons

The information in this article was previously made available to subscribers of Sustainable Dividends, along with access to several features not available on the public side including the BDC Google Sheets and:

This article was written by

BDC Buzz profile picture

I work with and for various private wealth managers, institutional and accredited investors. My goal for articles on Seeking Alpha is to bring exposure to business development companies (BDCs) that finance small to medium-sized businesses, typically overlooked by banks. BDCs are an instrument for investors to earn healthy dividends by avoiding double taxation at the corporate level and allowing income to flow directly to shareholders. Please see website link below for more information.

Email: buzz@bdcbuzz.com

Website: www.bdcbuzz.com

Newsletter: www.bdcbuzz.com/contact.html

Analyst’s Disclosure: I/we have a beneficial long position in the shares of VNQ, OCSL, CSWC, HTGC, FDUS, TPVG, GLAD, CGBD, TSLX, ARCC either through stock ownership, options, or other derivatives. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (167)

Hi Buzz,

I hope that it is ok and allowed but I linked your article to the comment section of Alpha article

seekingalpha.com/... 10/20/2021. About half way down. I also recommended your article.
Learning alot from you articles.
R. Brown
I'm really starting to think of cutting back my REIT exposure to NNN 65%, Healthcare 25% and Data Center 10% (currently fully valued +) and allocating more cash to BDCs, specifically BDCs that have first lien positions.
@pacificBLUE think about this one if you do

Donggle profile picture
@pacificBLUE $TPVG and forget about it!
@Donggle they need to cut that distribution badly, no? Poor NII coverage and negative trend. No way they make nearly 8% on NAV with that asset exposure.
Your chart says NRZ dividends the last 4 quarters total $.60. Schwab says $.75. Also their current run rate is $1.00. Yes, still a cut from the 2016 rate, but accuracy counts.

So does start date. How about picking another start date, say 10 years ago? Or before the Great Recession? I don't know what the outcome of these comparisons would be, but picking one and only one start date just 1 year and 8 months ago does not convince me to move a big chunk of money to BDCs, nor to shell out fees for an advisory service.


Oh, and a bunch of REITs, too, and a lot of other stuff.
On the other hand, both types of investments get massacred during a rate tightening cycle.
birder 4000 profile picture
I do own some CSWC but I do not feel as secure with BDCs as I feel with REITs. I think there is more risk with BDCs than with REITs. MAIN is my largest BDC holding and I hold only CSWC and MAIN in that sector.
BDC Buzz profile picture
@birder 4000 - CSWC seems to be popular now. Lots of comments.
If I remember, you had liked FDUS in the past. but you do not hold it now.
@drjoanv Buzz does hold FDUS. So, FWIW, does laotzu225.
BDC Buzz profile picture
@drjoanv - FDUS is listed in the holdings.
estebanlang profile picture
Most diversified income portfolios should include both REITs and BDCs but this is still a very interesting comparison and could potentially affect my weightings. I usually make my decisions based on longer time frames, however. It would be interesting to repeat these comparisons for 5, 10 and 15 year periods.
@estebanlang I agree.I use a strategy of ETF's,BDC's,REIT's,and MLP's.
BDC Buzz profile picture
@estebanlang - Please see my comments above.
estebanlang profile picture
@Flightmedic1 Me too. Except that I have to limit my MLP exposure since I'm working in an IRA. Using KMI and ENB as my biggest pipeline pipeline exposures to limit potential problems with the IRS.
@BDC Buzz Quick question about CSWC. On the surface it looks good and has great total return. However, as I was reviewing the company overview investor presentation from August 2021 they show an interesting chart in which the NAV plus distributions have grown from about $17.68 at 9/30/2015 (when they converted to a BDC) to $26.00 at 6/30/2021. However, the NAV has deteriorated from $17.68 at 9/30/2015 to $16.58 at 6/30/2021 - it appears that they have been paying part of their distributions out of NAV. Also, if you look at the total NAV + distribution return (ignoring price action) it only returned about 6.94% CAGR over that period. A big chunk of the total return is just investors bidding up income assets and driving the yield down. I'm just wondering if this BDC is as good as everyone says it is, particularly now (in contrast to buying it a year ago). Thoughts?
BartAtTheRanch profile picture

One needs to look at the entire story for CSWC. In the time interval you specify, they both spun off what is now CSWI and paid large special distributions which were (judiciously to my mind) paid out from the capital of and equity position they held in Media Recovery Inc. You may want to look at Buzz's articles specifically focused on CSWC (one of them was fairly recent). Hope this helps.

@BartAtTheRanch congrats to those who bought CSWC below NAV. Good move. Do you think it's reasonable to buy it now at a 56% premium? I'd be selling it now, if anything.
@Fero. Speaking for myself, since early this year (and full disclosure.... I've been wrong, since the market just seems to continue to go up, up, up....) I don't think it's been reasonable to buy most stocks including CSWC. I am long term holder of CSWC stock, by the way.
lshiang profile picture
As the author stated that "Most mortgage REITs and many of the equity REITs have had negative stock price performance over the last 21 months.", any individual investor needs to do his/her due diligence in investing BDCs and eREITs.
@lshiang you need to factor in distributions paid and reinvested to get a full picture. Stock price performance alone does not give it.
lshiang profile picture
@Fero. Shall, I only care TOTAL return. However, I seldom see any negative price performance stock is a good investment.
Donggle profile picture
@lshiang have a crystal ball is the best!
ABR seems to be the one and only mREIT that can seen as a long term holding. Thoughts anyone?
lshiang profile picture
@GregMill I agree!
@GregMill I totally agree. They have a unique and superior biz model vs other mReits. They have consistently increased divs and have a stellar track record of returns that blow away all merits and even the S&P 500..
Hipsterkitty profile picture
ABR and STWD can both be considered long term holdings.
Any thoughts on PTMN?
@panchess , Up and coming BDC.

But PTMN (and PFX) are story stocks, and they don't get analyzed properly just with metrics (what Buzz does). I doubt they will hit his radar until the stories (acquisitions for PTMN) are over and they behave like a 'regular' vanilla BDC. PFX for example is all capital gains (and 40% equity holding, not loans). It is flat over 2 years. But it had a major management change 9 months ago. Up huge over the one year (100% ? so far).
BDC Buzz profile picture
@panchess - PTMN is a bit small for many of my subscribers and of course does not have the best history but changed mgmt.
BartAtTheRanch profile picture
@BDC Buzz


Thanks for the article and will look forward to your adding ABR to the comparison (we don't hold it now, but have done well with it). These comments on PFX's total return (over the long-term abysmal, but not sure what to think since they went to internal management) give me a chance to ask about the date at this website:


and in particular if you refer to this website and trust its data? They do not report REIT data at it (though cefdata.com might do so elsewhere) but I checked on the day I think you specified "as of" and found some minor discrepancies in NAVPS and thus Premium / Discount, so would like to know if they can be used.

Thanks again for all you work,

PennyPlanSupporter profile picture
Not sure why anyone would toss their money into AINV.

Like buying K-Mart when you could easily buy Saks Fifth Avenue.
BDC Buzz profile picture
@DeepValueLover - Seems like AINV has been climbing out of a hole for the last 10 years.
Zucks profile picture
I have ARCC and may add a half position in another BDC before I stop investing and maybe raise cash for the next downturn. My pick will probably be influenced by one of your recent columns. Thank you. That said, your generalization may make sense, but HASI doubled in less than six months and Kimco went from $12+/- to $21+\- in about less than a year, plus dividend. So as always, it’s a market of stocks.
I’ve held NRZ since 2015 and while the distro cut, and share price crater last year were painful, I am confident the divy will continue to rise and share price will get back to 16.
Curious to know others’ thoughts here?
Jcb331 profile picture
@notjake I’m holding firm I need $13.92 to break even.
@notjake holding a substantial stake in NRZ. Other than the present financial profile, I admire the management of this company who guided it well through the very choppy Pandemic storm. I like where the company is headed, plus it is a much different company than the old NRZ, pre-pandemic.
BDCs vs Credit CEFs. That would be an interesting comparison.
@Fero. Yes, we definitely need a comparative analysis on these two. Anyone out there capable of doing this?
@zenstar666 portfolio visualizer can, LOL. I recently read a piece from ADS analytics about this. BDCs came out ahead.
BDC Buzz profile picture
@Fero. - That could be a good article as well. Which CEFs would you like to see?
Thoughts on psldx 16% yield
Jcb331 profile picture
@steve fishman I was always skeptical of PSLDX since I got rid of all my mutual funds long ago. But this one surprises me. It is having a great 2021. Latest div is 40% yield. It usually has a big special in December. May be big payoff. I missed the.boat on this one.
BDC Buzz profile picture
@steve fishman - PSLDX is a mutual fund.
Hipsterkitty profile picture
My BDCs have performed better than my REITs. Long ARCC, CSWC, HTGC, NEWT and MAIN.
@BDC Buzz Thank you for the information. I have quite a few REITs bought last year at discount. The closest of them to bdcs are mREITs. These holdings of mine despite the great dividends can quickly depreciate when their book value shrinks. Can this occur for BDC's? That is there book values can materially shrink even though they're able to maintain their high dividends?
BDC Buzz profile picture
@GuyRien1 - You need to buy quality which includes BDCs with a history of realized gains and NAV performance. Of course, these are the ones that trade at a healthy premium to NAV.
The Franchise profile picture
My top BDC choices for my portfolio are: ARCC, FDUS & TSLX. I also own MAIN and PFLT but not as bullish on those. My largest position for a BDC baby bond is PNNTG. It was well below par for an extended period of time so I loaded up. I never have a long position in mREITS except the preferreds. IMO, mREIT common shares are meant to be traded simply because the chart Buzz shows in the article and most that I have looked at decrease in value. Good investing to all!
BDC Buzz profile picture
@The Franchise I like PNNTG and will discuss next month.
hawkeyec profile picture
Long ARCC (3rd biggest individ stock position) and also have ARDC and ACRE (new position). Also have seven other BDCs. Their returns make up twice as much of my portfolio total (~10%) compared to the investment proportion (~5%). Most efficient current earners I have.
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