The inflation rate in December 2022 fell to 6.5% on an annual basis. That’s down from 7.1% in November and a peak of 9.1% in June 2022, but it’s still very high. And with the Fed still sticking to their guns on keeping interest rates higher for longer, we know that we must continue to protect our capital from volatile market swings.
So I’m still keeping an eye out for investment opportunities that provide inflation-beating income.
Business development companies, or BDCs for short, are a category I keep coming back to. Because BDCs are regulated investment companies (RICs), they must distribute over 90% of their profits to shareholders. That RIC status means they don’t pay corporate income tax on profits before distributing them to investors.
And unlike a lot of the large financial conglomerates that only allow institutional or accredited investors to build wealth, BDCs are open to anyone, making them a great way for individuals to get paid healthy dividends the same way that the big players do.
My pick this week is yielding 7.01% at time of writing, is growing its portfolio at a spectacular rate, and just sent out a Q4 2022 report that has great news for shareholders. The stock is already climbing, and I don’t know how long it’ll stay at this level before taking off, so now’s the time.
Let me tell you all about it.
Why MAIN Is the Best BDC to Buy Right Now
One of my favorite BDC’s is Main Street Capital Corporation (MAIN), the Houston, Texas-based business development company that provides capital solutions to lower middle market companies (between $5 and $150 million annual revenue) and middle market companies ($150 to $500 million in annual revenue). In total, the company has 195 cumulative investments and $6.05 billion in assets under management.
Today, the company released preliminary operating results for the fourth quarter of 2022, and shares are up 2.49% on the day. Here’s why I expect that trend to continue.
For the quarter, investment activity with originations totaled $373 million for the year. Its private loan investment strategy also had another successful year resulting in growth in its private loan portfolio of $335 million. Together, the investment activity in the company’s loan investment strategies resulted in a net increase in its total investment portfolio of $515 million on a cost basis during the year, to a record total investment portfolio of $3.8 billion on a cost basis at year end.
The company finished 2022 with quarterly and annual records for distributable net investment income per share. As a result, our quarterly distributable net investment income exceeded $1 per share for the first time and exceeded the monthly dividends paid to shareholders by over 56% for the quarter and over 33% for the year.
Speaking of dividends, at the current price, the yield is a healthy, inflation-beating 7.01%!
Bottom line, MAIN is in my sweet spot right now: good yields, solid income growth, and a business structure that ensure shareholders are some of the primary beneficiaries of their success. Add it while it’s still trading under $40.
— Shah Gilani
Source: Total Wealth