What's worked in 2022? High dividend stocks. The iShares Core High Dividend ETF (HDV) is positive since last November, back when so many once-high-flying tech stocks and small caps peaked.
What hasn't worked in that time? Capital Markets stocks, as evidenced by a 27% plunge in the SPDR S&P Capital Markets ETF (KCE). Amid a freeze in IPO activity and reduced M&A as interest rates have risen, Financials sector stocks that rely on dealmaking have struggled.
This comes as some niches of the sector are doing fine, such as regional banks. One small closed-end management company that targets the middle market for investment opportunities pays a big dividend, but it, too, is stuck in a downtrend.
According to Bank of America Global Research, Barings BDC Inc (NYSE:BBDC) is a specialty finance company, regulated as a BDC that invests in debt and equity of middle market businesses. The company's objective is to achieve high total returns through current income from its debt investments and capital appreciation from equity investments. The company has some upside potential fundamentally due to its origination platform and a portfolio geared toward the tail end of the credit cycle, which we appear to be in. Downside risks include deteriorating credit markets even with a stable portfolio, reduced investment and capital markets activity, which has already been reported by some investment banks, and generally poor investment performance expectations.
The North Carolina-based $1.1 billion market cap Capital Markets industry company within the Financials sector trades at an elevated 22.6 trailing 12-month GAAP price-to-earnings ratio and pays a very high 9.7% dividend yield.
On valuation, BofA sees earnings growing sharply this year after a strong 2021 rebound. EPS is then expected to slow down through 2024, but the Bloomberg consensus forecast is more upbeat looking forward. Dividends are anticipated to increase through next year, resulting in a continued high yield, perhaps in the double digits. Its NAV is about $11.50 at last check and its forward GAAP P/E is near 10, which is quite cheap.
Looking ahead, BBDC's corporate event calendar by Wall Street Horizon is quiet. It has a Q3 unconfirmed earnings date of Wednesday, November 9, after market close.
Baring's valuation and dividend yield are compelling, but its chart is mired in a downtrend that dates back to November last year. After rallying sharply to a high above $11.50, shares have dropped almost 20% with lower highs and lower lows throughout the year. The stock also found resistance at its downtrending 200-day moving average last month, which had confluence with its downtrend resistance line. Also notice the 'volume by price' indicator on the left - once BBDC rallied to the bar indicating the highest volume of shares previously traded, the stock quickly retreated. The $10 to $10.50 range is clearly resistance.
I do, however, see some support near $9.20. Should that level break, it might take a trip down to its downtrend support line. Overall, I'd avoid the stock for now and perhaps nibble on the next approach to the green support line.
High-yield stocks have done well this year while the Capital Markets industry has struggled mightily. BBDC, a low-volatility Financials firm that pays a hefty yield, looks good on valuation while its chart is weak. Overall, long-term investors can continue to hold it for that big yield, but swing traders should avoid BBDC when looking for long opportunities.
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