How Business Development Companies Generate Their Sky-High Dividends

Business development companies (BDCs) like Ares Capital, Main Street Capital, and Prospect Capital offer dividend yields exceeding 10% by lending to mid-sized companies at above-market interest rates. While these high yields are legitimate, they come with significant risks including borrower defaults, reduced lending demand during economic downturns, and minimal capital appreciation. BDCs are best suited as income investments within a diversified portfolio rather than core holdings for capital preservation.