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Imagine being one of the earliest investors in a high-flying tech company like Meta Platforms Inc (NASDAQ: META). Obviously, given its explosive growth, anyone who got in on the floor of that made a mint. But a lot of those people were well-funded venture capitalists - people with an extra $10 million, $25 million, or $50 million to invest early in a company's history.
For everyone else, the opportunity to take advantage of the profit potential in these groundbreaking companies has been limited - until now, that is.
Today, I want to introduce you to a simple but relatively unknown investment that lets you ride alongside venture capital firms while at the same time receiving inflation-beating cash distributions.
I'm talking about Business Development Companies, also known as BDCs for short.
A business development company is an organization that invests in small- and medium-sized companies in the initial stages of their development.
BDCs allow smaller, nonaccredited investors to invest in them (the BDC), and by extension, in small growth companies.
And, because BDCs are regulated investment companies (RICs), they must distribute over 90% of their profits to shareholders. That RIC status means they don't pay corporate income tax on profits before distributing them to shareholders.
That makes BDCs a great way for individuals to get paid healthy dividends as early investors, especially when the BDC uses floating rate loans that produce more money when rates rise.
Let me tell you about my favorite one...
The Best BDC Stock to Buy Right Now
Hercules Capital, Inc (NYSE: HTGC) has provided venture debt, debt, senior secured loans, and growth capital to privately held venture capital-backed companies at all stages of development - from startups to expansion stage, including select publicly listed companies, since its founding in 2003.
Previous clients included social media darlings Facebook and Pinterest; tech-darlings like 23andMe; and Covid favorites, Postmates.
In addition to having a keen eye on early-stage investments, a whopping 94% of HTGC's investments are floating rate loans with interest rate floors.
That means when interest rates rise, so do the profits that HTGC generates - and because HTGC must distribute over 90% of their profits to shareholders, they have the ability to pay out inflation-beating dividends.
Speaking of which, at the current price, HGTC is delivering a juicy 9.03% yield.
So, if you're looking for a way to generate huge yields while at the same time having exposure to early-stage investment opportunities, consider HTGC.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.