High Yields From High-Rate Lenders

A likely peak in inflation, along with interest rates that are thereby also at or near their apex, stands to revitalize the longrunning global search for yield.

- Jeffrey R. Kosnett

That should mean more demand for high-yielding credit securities, which include business development companies, or BDCs (typically high-rate lenders to small or midsize firms, with similar tax advantages to those of real estate investment trusts), nonbank lenders, and a few financial REITs. If 5% is the new 1% in the broad bond market, then it is not far-fetched to proclaim 8% the new 5% for these securities.

Although some investments priced to yield 8% are unappealing if you swallow all the economic gloom, the majority of these publicly traded lenders are having no trouble disbursing interest and dividends to their investors in full and on time. And lending at higher interest rates helps these firms build up their underlying asset values. Until and unless the economy falls apart, that will continue. Even in a struggling economy, your investment income should be okay.