Business development companies with larger-scale portfolios are able to take part in higher-quality deals within the BDC industry and have more resilient income streams, which offers investors less of a negative impact to earnings versus smaller companies, says Sanjay Sakhrani, a Senior Vice President and Analyst at Keefe, Bruyette & Woods, Inc.
“I think from an investor standpoint, it’s a lot easier to invest in a more liquid name from a stock perspective than in an illiquid one,” Sakhrani said. “One of the problems for smaller BDCs is that they are small from a market-cap perspective, and it makes it tough to attract new investors into the name.”
Sakhrani has chosen Ares Capital (ARCC) as one of his top picks in the sector and he has an “outperform” rating on the company. He describes ARCC as one of the larger companies in the BDC space, which allows it to invest more broadly across the market. Sakhrani says ARCC’s dividend yield is about 10.5%.
“The reason we like Ares is they have a lot of liquidity and they’ve been waiting to deploy that liquidity when things got choppier,” he said. “And it seems to us that the competitive dynamic that existed before has eased somewhat, and you’re seeing a pickup in terms of yield, so I think they can probably deploy that liquidity in a more favorable investing environment today.”
A Stock with Enormous Scale and Competitive Advantage: McKesson Corporation (NYSE:MCK)
July 28, 2016
Restaurants With Size & Scale Focus on International Growth
July 28, 2010
U.S. Airways Group (LCC)’s Merger with American Leads to Increased Pricing Power and Economies of Scale
March 18, 2013
Solazyme Inc (SZYM) to Scale Up Two Plants in 2014
March 05, 2014
NXP Semiconductors NV (NXPI) Gaining Scale Through Acquisition
May 28, 2015
