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 underlying investments. You can look into its full list of investments here for more detail, but consider that its major holder at 10.3% ownership is the Virginia Retirement System — a state pension fund! If that doesn’t give an air of stability of BKCC stock, it’s hard to know what would. And given the 10.6% dividend, it’s easy to see why a state retirement system would fall in love with BlackRock Kelso for its income potential.
Obviously, nothing is for certain, and an economic downturn would take a bite out of many underlying investments in the BlackRock Kelso portfolio. And it might 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 more than 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 midsize companies look to expand, BlackRock Kelso will benefit handsomely.
At a hair under $10 per share, BKCC 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.