Business development companies, or BDCs, are a corner of the market that many investors overlook, but income seekers know well. Born out of legislation in the 1980s to encourage investment in small and mid-sized businesses, BDCs act as publicly traded private equity firms. They lend to and invest in growing companies that might not otherwise have access to traditional capital markets.

For dividend investors, the magic is in the structure. BDCs are required to distribute at least 90% of their taxable income to shareholders in order to maintain their favorable tax status, much like REITs. That mandate often translates into eye-popping dividend yields, with some of the best BDC stocks paying out yields that are two or three times higher than the average of the S&P 500. It’s little wonder they’ve become a go-to for investors hunting for income in a yield-starved world.

Pros of BDC stocks

• High dividend yields – Many BDCs yield in the high single digits, and some even higher.
• Income-focused mandate – 90% of taxable income must be paid out to shareholders.Exposure to private markets – Offers a way to invest in small- and mid-sized companies not usually accessible to retail investors.
• Diversification – BDC portfolios span multiple industries, from tech startups to manufacturing firms.
• Monthly and quarterly payouts – Some BDCs offer monthly dividends, providing more frequent income.

Cons of BDC stocks

• Interest-rate sensitivity – Rising rates can impact both borrowing costs and portfolio company performance.
• Credit risk – BDCs lend to businesses that are often more leveraged and less established, raising the risk of defaults.
• NAV volatility – The value of a BDC’s portfolio can swing with market conditions and borrower health.
• Dilution risk – BDCs may issue more shares to raise capital, diluting existing shareholders.
• Tax complexity – Dividends may be a mix of ordinary income, capital gains, or return of capital.

Dividend investing considerations

BDCs are built for dividends. By law, they can’t hoard their earnings since they have to pass profits through to investors. This makes them natural yield machines, but the tradeoff is that BDCs can’t reinvest as much back into their businesses, limiting long-term growth. Many BDCs are also externally managed, meaning fees can eat into returns, so investors need to be selective.

For dividend investors, the sector’s appeal is straightforward: reliable, often double-digit yields, and exposure to parts of the economy that would otherwise be off-limits. But the risks are real. Because BDCs lend to riskier borrowers, recessions and credit crunches can put pressure on payouts. That’s why the best investors in this space approach BDCs with both optimism for the income and caution for the risks.

Our BDC stocks list

We’ve compiled a list of BDCs that are accessible to US investors. These companies stand out for their yield potential, scale, and established presence in the business development industry. Whether you’re looking for high yields, monthly income, or diversified exposure to private market lending, the best BDC stocks offer a distinctive (and often rewarding) way to invest for income.