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Q2 earnings confirmed my call for a market rotation in BDCs; quality bias and selectivity remain critical for outperformance. Structural headwinds—spread compression, falling base rates, and thin dividend coverage—signal elevated risk of further dividend cuts across the sector. Current sector repricing is insufficient for broad new BDC allocations; most remain unattractive except for select names with strong fundamentals.

BDC sector faces significant risks: high valuations, spread tightening, and thin dividend coverage leave little margin of safety. Lower base rates will likely be soon here, creating further headwinds for BDCs and pressuring net investment income and dividends. I recommend avoiding speculative BDCs, focusing on high-quality names with robust portfolios and strong dividend coverage at a discount.

Oaktree Specialty Lending Corporation (NASDAQ:OCSL ) Q3 2025 Earnings Conference Call August 5, 2025 11:00 AM ET Company Participants Armen Panossian - CEO & Co-Chief Investment Officer Christopher McKown - MD,CFO & Treasurer Clark Koury - Corporate Participant Mathew M. Pendo - President Raghav Khanna - Co-Chief Investment Officer Conference Call Participants Finian Patrick O'Shea - Wells Fargo Securities, LLC, Research Division Melissa Wedel - JPMorgan Chase & Co, Research Division Operator Welcome, and thank you for joining Oaktree Specialty Lending Corporation's Third Fiscal Quarter 2025 Conference Call.

Oaktree Specialty Lending (OCSL) came out with quarterly earnings of $0.37 per share, missing the Zacks Consensus Estimate of $0.45 per share. This compares to earnings of $0.55 per share a year ago.

I focus on dividend investing to build a reliable income stream, prioritizing companies with strong fundamentals and consistent dividend growth. Old Republic International stands out for its robust earnings, special dividends, and over 40 years of dividend increases, trading at an attractive valuation. Ares Capital offers a high yield, strong liquidity, and a history of stable dividends, making it a solid choice for income-focused investors.

Since the announcement of tariffs in early April, the BDC market has become a less interesting place for capital deployment (as we can imply from higher discounts). Yet, as it is usually the case, higher discounts mean more opportunities for patient investors. In this article, I discuss two 10%+ yielding BDCs, which, even before the uncertainty level spiked higher, were bargains and now have become even more attractive buys.

Many investors go for big yield with bigger risk. Barf. This report was recently sent to our members. We picked up shares with a 9.5% yield.

BDCs are high-yield assets that can come in handy for income investors. Yet, attractive yields tend to be there for a reason. In the article, I share my key lessons learned from my relatively successful BDC investment journey.

Currently, an average BDC trades at an 8% discount to NAV. However, those with high dividend cut probabilities have 20%+ discounts. Many of these heavily punished BDCs are busts.

BDCs are exposed to some material headwinds. We can see how already several BDCs have cut their dividends. Theoretically, it might make sense to buy those that have made dividend cuts, which could indicate that the new yields are rather sustainable.