Interest Rate Cut Potential for BDCs

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potential interest rate cuts

The Motley Fool

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1 Ultra-High-Yield Dividend Stock You'll Want to Have on Your Radar as Rate Cuts Loom

Summary

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82% Informative

The Federal Reserve has hiked interest rates 11 times in an effort to stifle abnormally high levels of inflation.

The current level of 2.9% has materially cooled from its high points during the summer of 2022 .

Many BDCs focus on early-stage businesses looking for funding to get their operations off the ground.

Hercules Capital (HTGC) specializes in venture debt, making high-yield loans to companies that have previously raised outside funding from venture capital.

As of this writing, Hercules Capital carries a dividend yield of 10.4% -- nearly 8 times that of the SPDR S&P 500 ETF Trust.

Hercules has a unique opportunity to form strong relationships with the VCs that back many of its portfolio companies.

I'm optimistic Hercules will continue generating strong growth and be able to maintain and raise its dividend payments over a long-run time horizon.

A reduction to interest rates can also result in excess capital that would otherwise be geared toward higher interest payments.

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informal

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English

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