BDC vs. REITs | 06/19/2014 | The Motley Fool

TL;DR

BDCs are potentially the new REITs, offering high dividends and growth potential.

Transcript

hey fools I'm David Hanson today joined by Fool contributor Jordan Wathan Jordan were talking BD sees business development companies and more specifically BD sees verse REITs and there's people out there saying that BD seas are the new REITs a lot of similarities here high dividend they have to pay out their income are they really the new Reed's is... Read More

Key Insights

• ✋ BDCs are being considered as potential substitutes for REITs due to similarities in high dividend payouts.
• 😮 Ares Capital Corporation forecasts significant growth in the middle-market loan sector, supporting the rise of BDCs.
• ↩️ Internally managed BDCs like Main Street Capital and Hercules Technology Growth Capital could offer better returns for shareholders.
• 😤 The success of BDCs depends heavily on the underwriting capabilities of their management teams.
• 👶 BDCs, though newer compared to REITs, are maturing and have potential for substantial growth.
• 📈 Early investors in BDCs may benefit from being ahead of the trend and capitalizing on the growth potential.
• 🏍️ The next economic cycle will likely reveal which BDCs have solid underwriting practices to withstand market fluctuations.

Questions & Answers

Q: Are BDCs the new REITs for income investors?

While not definitive, BDCs show promise as an asset class attractive to income investors for their high dividends and growth potential.

Q: What advantages do internally-managed BDCs like Main Street Capital have?

Internally-managed BDCs can benefit shareholders by keeping costs low as assets grow, potentially offering better returns over time.

Q: How crucial is the underwriting capability of BDC management teams?

The success of BDCs hinges on the management's ability to underwrite loans effectively, as poor investments could lead to significant losses in a downturn.

Q: How do the growth trajectories of REITs compare to BDCs historically?

While REITs have a longer track record, BDCs are gaining traction and may follow a similar growth pattern if managed effectively.

Summary & Key Takeaways

• BDCs are gaining attention as potential replacements for REITs due to similarities like high dividend payouts.

• Ares Capital Corporation supports this narrative with projections of growth in the middle-market loan sector.

• Internally managed BDCs like Main Street Capital and Hercules Technology Growth Capital may offer better shareholder benefits.