BlackRock Kelso Capital Corp. (BKCC) is a business development company, or BDC, which generates revenue from investments in and loans to midsized companies. As that capital generates returns, BlackRock Kelso shares generate big dividends.
Of course, that means BKCC lives and dies by its underling investments. You can look into their full list of investments here for more detail, but consider that hedge funds including Legg Mason Capital Management and Citadel Investment Group have recently gotten bullish on the stock — these Wall Street firms are confident about the portfolio. Also note that, broadly speaking, BlackRock is diversified across technology, materials, manufacturing and services, which is a plus.
Obviously an economic downturn would take a bite out of many underlying investments in the BlackRock Kelso portfolio. And it may be a double whammy, since dividends could suffer from underperformance in the underlying investments, too. For instance, distributions went from 43 cents a quarter at the end of 2008 to just 16 cents in 2009 thanks to the downturn.
This is a real risk, but it swings both ways — and in good times, BlackRock Kelso really puts the pedal down. The current yield of over 10% is calculated from 26 cents paid quarterly — yet BlackRock Kelso paid 32 cents a share as recently as 2010. If the economy turns a corner and more midsized companies look to expand, BlackRock Kelso will benefit handsomely.
The company trades at book value and has a decent portfolio of investments that should keep it reasonably stable in 2013 — and hopefully a big income driver for your portfolio going forward.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.