Those who've read my work know I love the Dividend Aristocrats and Kings, as they are an ideal foundation for a dividend-growth investor's portfolio. While they are a “lot of things”, high-yielding isn't usually one of them.

Now, an income investor's first goal is to generate income. But, what if we want a bucket of stocks that pay high yields? You might know about mortgage REITs, and preferred shares, so today, I'll cover high-yielding BDCs. 

Business development companies are investment funds that finance small to medium-sized private companies and businesses for different purposes. Like real estate investment trusts (REITs), BDCs are required by law to pay shareholders 90% of their earnings, which can lead to eye-watering yields. However, 

“Investors in Business development companies need to be careful in chasing yield", says Jerry Paul, Sr. Vice President of Fixed Income at Icon Advisers. Indeed, this is true no matter what company we add to our portfolios. It's important to ensure the company is well-capitalized, has manageable debt, has a shareholder-friendly c-suite, and so on. 

"I have always viewed BDCs as being ‘high-yield bonds on steroids,” adds Paul. “There is a wide range of choices when investing in BDCs. For long-term investors, I suggest diversifying by using at least 4-5+ issuers with a focus on yields in the 8-12% range.” 

So, today, let’s look at the highest-yielding BCDs with analyst buy ratings. 

How I Came Up With The Following Stocks

Using Barchart’s Stock Screener tool, I searched for BDCs with the following criteria:

• Number of Analysts and Current Analyst Rating: 8 (Medium) and above and 4 (Moderate Buy) to 5 (Strong Buy). This trusty combination of filters allows me to look for buy-rated BDCs while giving me an accurate consensus view of Wall Street sentiments.
• Annual Dividend Yield: Left blank so I can sort the results using it.
• Watchlists: My Barchart watchlist is full of different kinds of companies, but for today, I used my BDC list. 

With those out of the way, I ran the scan and got five results. 

I arranged them from highest to lowest yields, and as a special treat, I'll cover all five of them today, starting with number one: 

Trinity Capital Inc (TRIN)

Trinity Capital is a leading provider of venture debt financing, supporting high-growth startups with tailored capital solutions. The company partners with emerging businesses to fuel expansion while minimizing equity dilution for founders. It has deployed over $3.8 billion in loans and equipment financing to companies across various industries like tech and life sciences.

Today, the company pays 51 cents quarterly, translating to a $2.04 annual rate and an impressive 12.83% yield based on TRIN stock’s current trading price. Meanwhile, analysts give it a moderate buy rating. 

Sixth Street Specialty Lending (TSLX)

Sixth Street Specialty Lending provides flexible, growth-oriented financing solutions to middle-market companies. It focuses on direct lending, offering senior secured loans and other structured credit products to businesses across various industries.

Sixth Street pays a base rate of 46 cents every quarter, with a variable dividend rate on top. Based on the base rate only, that’s an 8.19% yield, but if you factor in the variables, it works out to over 9.1% (on a forward basis). TSLX stock also has a strong buy rating from analysts. 

Blackstone Secured Lending Fund (BXSL)

Blackstone Secured Lending Fund focuses on originating and investing in senior secured loans to private U.S. companies. Managed by Blackstone Credit, BXSL primarily lends to large, established businesses with strong fundamentals, aiming to generate stable income for investors. 

Based on its latest distribution, Blackstone Secured Lending pays 77 cents quarterly, translating to a $3.08 annual rate and a 9.06% yield. BXSL stock also has a moderate buy rating. 

Hercules Technology Growth Capital (HTGC)

Hercules Technology Growth Capital, or Hercules Capital, provides venture debt to high-growth, innovative companies. It primarily supports technology, life sciences, and sustainable energy businesses with tailored financing solutions, including senior secured loans and growth capital.

Like many BDCs, Hercules Capital pays a base and supplemental dividend. The company pays a $1.60 annual base rate based on its latest distribution, which translates to a 7.6% yield. However, if we add in the last four quarters of supplemental dividends, the forward yield shoots up over 9%.

HTGC stock also has a moderate buy rating. 

Ares Capital Corp (ARCC)

With over $26.8 billion in investments, Ares Capital Corporation is one of the largest BDCs in the US, providing direct lending and capital solutions to middle-market companies. Managed by Ares Management, ARCC focuses on senior secured loans, mezzanine debt, and equity investments across various industries.

The company pays 48 cents per share quarterly, bringing its annual dividend to $1.92, translating to an 8.24% yield. It's also one out of two BDCs on this list with a strong buy rating. 

Final Thoughts

It’s always a good idea to diversify, even if investing in one kind of stock or asset class. With these five BDCs, you can expect high yields while having confidence that Wall Street analysts rate these picks a buy, or better. However, nothing is sure in the market, so always stay on top of your investments and do your due diligence. It pays to be informed and ready so that you’ll be armed with the information you need to make the right decisions when the time comes. 

On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.