A business development company (BDC) offers potentially high dividend yields that come with equally high risks. Savvy investors might consider this option if they have a high level of risk tolerance and a deep understanding of the investment structure.
Potentially high yield
They help provide small to middle-sized companies with the needed financing to continue business as usual.
Common types of BDCs include:
StructureA BDC is structured very similarly to a Real Estate Investment Trust (REIT) in the fact that it’s a closed-end investment. BDCs are technically Regulated Investment Companies (RIC) and investors can’t withdraw money from the fund like they would with, say, a mutual fund investment.
PayoutsInstead, BDCs can be non-traded or may trade on a public exchange and have unique liquidity requirements. BDCs are regulated investment companies and must distribute over 90% of their profits to shareholders in the form of dividends.
BDCs are typically invested in illiquid securities, which can lead to good diversification opportunities but also liquidity risk.
Once you have determined that a BDC investment is suitable for you, it can be purchased with your Self-Directed IRA or other retirement account at Mainstar Trust. Click below to find out how to use a Mainstar Trust account to invest in a BDC.