A common piece of advice is to work smarter, not harder. One way to do that is with passive income, which comes from ownership rather than labor or active involvement in an enterprise. One of the best ways for investors to create a stream of passive income is by owning stocks that provide healthy and reliable dividends.
We screened our 24/7 Wall St. dividend equity research database, looking for business development company (BDC) stocks that pay generous dividends. We found six that combined can generate over $2,000 a year in passive income for an investment of $2,500 in each stock.
Barings BDC
Investing in transportation and logistics
- Stock: Barings BDC Inc. (NYSE: BBDC)
- How many shares for $2,500: 282
- Dividend yield: 11.8%
- Annual passive income: $295.00
This BDC invests primarily in private middle-market companies that operate across a wide range of industries, including manufacturing and distribution, business services and technology, transportation and logistics, and consumer products and services. Barings BDC specializes in mezzanine, leveraged buyouts, management buyouts, ESOPs, change of control transactions, acquisition financings, growth financing, and recapitalizations in lower middle market, mature, and later-stage companies. Its quarterly dividend was last cut in 2018. The share price has bounced between $8.50 and $9.50 for the past six months.
BlackRock TCP Capital
Investing in research and consulting
- Stock: BlackRock TCP Capital Corp. (NASDAQ: TCPC)
- How many shares for $2,500: 225
- Dividend yield: 15.4%
- Annual passive income: $385.00
This BDC typically invests in communication services, television, wireless telecommunication services, apparel, textile mills, restaurants, retailing, energy, federally sponsored credit agencies, insurance, hospitals and health care centers, biotechnology, engineering services, tax accounting, scientific consulting, charter freight air transportation, IT consulting, software diagram and design, computer-aided design, computer components, chemicals, and more. The last time the quarterly dividend was cut was 2020. Shares are down less than 4% year to date and have underperformed the S&P 500 for almost a year.
Fidus Investment
Investing in aerospace and defense
- Stock: Fidus Investment Corp. (NASDAQ: FDUS)
- How many shares for $2,500: 130
- Dividend yield: 15.4%
- Annual passive income: $385.00
The company prefers to invest in aerospace and defense, business services, consumer products and services, health care products and services, industrial products and services, IT services, niche manufacturing, transportation and logistics, and more. It specializes in leveraged buyouts, refinancings, change of ownership transactions, recapitalizations, and strategic acquisitions, but not turnarounds. The dividend has increased in each quarter since September 2022. Shares are trading more than 5% higher than two years ago despite being down 2% or so year to date.
Runway Growth Finance
Investing in technology and services
- Stock: Runway Growth Finance Corp. (NASDAQ: RWAY)
- How many shares for $2,500: 188
- Dividend yield: 13.4%
- Annual passive income: $335.00
This company primarily invests in companies engaged in the technology, life sciences, health care and information services, business services and select consumer services and products sectors. It prefers investments in companies engaged in electronic equipment and instruments, systems software, hardware, storage and peripherals and specialized consumer services, application software, health care technology, internet software and services, data processing and outsourced services, internet retail, human resources and employment services, biotechnology, and education services. The quarterly dividend has not been cut since the 2021 IPO, and shares are up almost 3% in that time.
Saratoga Investment
Investing in automotive services
- Stock: Saratoga Investment Corp. (NYSE: SAR)
- How many shares for $2,500: 109
- Dividend yield: 12.5%
- Annual passive income: $312.50
This one specializes in leveraged and management buyouts, acquisition financings, growth financings, recapitalization, debt refinancing, and transitional financing transactions in aerospace, automotive aftermarket and services, business products and services, consumer products and services, education, environmental services, industrial services, financial services, food and beverage, health care products and services, logistics, distribution, manufacturing, restaurants services, food services, software services, technology services, specialty chemical, media, and telecommunications. The dividend has increased every quarter since the summer of 2022. Shares are down almost 12% year to date, primarily due to a recent disappointing quarterly report.
Trinity Capital
Investing in innovative companies
- Stock: Trinity Capital Inc. (NASDAQ: TRIN)
- How many shares for $2,500: 177
- Dividend yield: 13.4%
- Annual passive income: $360.00
This Phoenix-based venture capital firm specializes in venture debt to growth-stage companies looking for loans or equipment financing. It offers advice to middle-market businesses on mergers and acquisitions, capital raises, restructurings, and strategic advisory assignments. The dividend had been variable since the 2021 IPO. Shares are up almost 6% in the past year but still down over 6% since going public.
$2,500 in Passive Income
Calculating passive income
So, for a $15,000 investment split evenly between these six BDC stocks, the investor creates a passive income stream of more than $2,000 per year.
| Stock | Investment | Annual Income |
|---|---|---|
| BBDC | $2,500 | $295.00 |
| TCPC | $2,500 | $385.00 |
| FDUS | $2,500 | $385.00 |
| RWAY | $2,500 | $335.00 |
| SAR | $2,500 | $312.50 |
| TRIN | $2,500 | $360.00 |
| Total | $15,000 | $2,072.50 |
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