I Scored 5 Top BDCs For Income. Here's The Order

BDC thesis - regulated, double-digit yields via the 90% payout rule, but inability to retain capital makes credit and dividend risk primary, so yield alone is a poor quality signal

TOLL+M for BDCs - Book Quality (first-lien, non-accruals, NAV), Origination Moat (scale, sponsor sourcing), Funding Efficiency (internal mgmt, accretive issuance), Dividend Durability, Cycle Positioning

Screen criteria - must cover the base dividend, avoid base cuts, run efficient funding, and earn sustainable double-digit ROE

Top five survivors - MAIN, ARCC, HTGC, CSWC, FDUS; three are internally managed, all cover dividends and show double-digit ROE

Macro and credit backdrop - fed funds 3.50%-3.75%, direct-lending coverage ~2.0x, PIK toward 8%, Fitch sees mid-single-digit defaults; higher-for-longer lifts coupons but strains borrowers

Actionable guidance - avoid headline yields tied to cut histories (Oxford Square 30%, Runway 21%, Prospect 18%, BlackRock TCP 18%), favor the five screened BDCs and buy on NAV discounts from fear, not fundamentals

Of all the questions that hit my inbox, none comes up more than some version of this one: "Leo, which BDC should I actually own for income?" That's after I ranked industries like midstream and aerospace & defense. I hinted at covering more income-focused investments. And as many readers are in the market for some form of income, I have to say that it's a fair question.

It's also a hard question because business development companies are the most seductive corner of the income market. Double-digit yields, monthly or quarterly checks, regulated structures, and a front-row seat to private credit, which is the same asset class that pension funds and sovereign wealth funds are scrambling to access. The catch is that for every BDC quietly compounding wealth, there's another one slowly liquidating itself one dividend cut at a time.

All of this is a complex way of saying that this space is a minefield. There are some great stocks out there, but also many that could eventually lead to both dividend cuts and capital losses. And as income investors often require safety, there is no way we can compromise on that.

So I did what I always do. I ran the names through my framework, grounded every score in the most recent quarter's filings, and forced myself to rank them using the qualitative model I have used before.

What came out surprised me a little.

Now, as we have a lot to discuss and I don't want to make you wait any longer, let's get to it!

I Scored 5 Top BDCs For Income. Here's The Order

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