Business development companies have shown a positive performance in 2012, and the favorites are Ares Capital Corporation (ARCC), Fidus Investment Corporation (FDUS) and THL Credit (TCRD) for Vernon C. Plack, CFA, Director of Research at BB&T Capital Markets.
“We’ve had strong portfolio growth, which generated good earnings growth as well as solid dividend growth. Going forward, the companies that we favor are those that we believe will continue to show above-average dividend growth and are priced at reasonable valuations,” Plack said.
On the larger-cap side, Plack prefers Ares Capital. “We believe that the company is overearning its dividend, and we are looking for growth of 8% during the next 12 months,” he said. “The management team has done an outstanding job of investing and their acquisition of Allied Capital has been highly accretive.”
On the smaller-cap side, Plack likes Fidus Investment and THL Credit. “Given available cash and the ability to borrow from the SBA, we think Fidus will have strong portfolio growth over the next 12 months and believe that they can increase their dividend 16% during the 12 months. We believe THL is a similar story given capital availability, and we think they will be able to grow their portfolio roughly 30% over the next 12 months, which should drive dividend growth somewhere in the 12% range,” he said.
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