President Trump’s first term was defined by tax cuts, deregulation, and a bold stance on trade, which had significant effects on capital-intensive sectors. The 2017 Tax Cuts and Jobs Act notably reduced corporate tax rates and allowed businesses to expense capital investments, creating a more favorable environment for middle-market companies looking to expand.
During his run for the second term, Mr. Trump made commitments to tax reductions, implement tariffs on imports, and support for domestic manufacturing. Lower tax rates will improve liquidity, making it easier for companies to invest in growth, whether through equipment acquisitions, facility expansions, or strategic hires. Moreover, the administration’s commitment to deregulate industries will reduce compliance costs for asset-heavy industries like construction, energy, and manufacturing, freeing up additional capital for long-term investments. These factors are poised to create a strong backdrop for middle-market firms seeking financing solutions to fuel expansion, taking advantage of the tariffs to replace domestic demand with their product.
Now, let’s explore two picks that are well-positioned to supply steady income from a more financially resilient middle-market landscape, with businesses poised for growth and increased economic activity.
Pick 1: SLRC – Yield 9.8%
Formed in 2007, SLR Investment Corp. (SLRC) is a BDC (Business Development Company) that supports middle-market companies primarily through investments in the form of senior secured loans and financing leases. The BDC ended Q3 2024 with a portfolio fair value of $3.2 billion, invested in 850 unique companies across 109 industries, with an average exposure of just 0.12% per company.
Equipment financing, cash flow loans (sponsor finance), and ABL (Asset-Based Loans) represent the largest portions of SLRC’s business, and the BDC’s portfolio weighted average yield at the end of Q3 was 11.8%.
Author’s Calculations
SLRC has reported five consecutive quarters of Net Investment Income exceeding the dividend payments, and the BDC’s Q3 NII of $0.45/share adequately covers its $0.41/share quarterly dividend.
We expect capex-heavy businesses that are equipment- and asset-dependent to benefit from the new administration’s legislative and executive actions, in turn resulting in tailwinds for SLRC in the form of strong loan originations and higher portfolio accrual levels.
Pick 2: BIZD – Yield 10.5%
VanEck BDC Income ETF (BIZD) is an ETF that invests in BDCs (Business Development Companies). BDCs are non-bank lenders that typically focus on the "middle-market", businesses that are large enough to benefit from having debt as part of their capital structure but are not publicly traded.
Unlike banks, BDCs don't rely on depositors. Instead, they raise permanent capital. Banks always have to be aware that their depositors can withdraw their money, which means that banks have to maintain high levels of liquidity, and tend to favor assets that can be sold.
As an investor in a BDC, you can't just withdraw your money. If you want out, you have to sell your shares to someone else in the market. You can't phone up the BDC and demand they buy the shares back. This means that BDCs don't have to worry about liquidity. They can make long-term investments and have a lot more flexibility in their lending structures than banks.
BDCs originate a loan, and then typically hold it to maturity. As a result, the BDC's main interest is in maximizing their return and limiting default risk. This means they are open to a wide variety of loan structures, tailored to the needs of the business. As banks pull back from direct lending to corporations, we've seen even very large companies become interested in BDC loans, and we've seen BDCs growing large enough to manage very large loans.
BIZD is a passive ETF, which invests in BDCs with a market-cap weighting. This means that it has higher allocations for the largest BDCs: Source
BIZD Website
BDCs have been very strong over the past few years thanks to rising interest rates driving their earnings higher. This will fade as interest rates decline, which has led to some avoiding the sector. However, it is worth noting that BDCs were trading at their highest prices in 2021 when interest rates were at 0%.
In a low interest rate environment, BDC earnings are lower, but their valuations tend to be higher because investors search for reliable yields.
We strive to have a portfolio that is interest rate agnostic. In other words, we don't want to rely on being able to predict what the Fed will do and when, because even the Fed can't predict what they will do.
Conclusion
With a policy framework focused on tax relief, deregulation, and domestic industry support, President Trump’s agenda sets the stage for a business environment rich in opportunity. Middle-market companies stand to benefit from improved cash flows, increased reinvestment, and a more favorable competitive landscape due to tariff-driven shifts in demand. As these firms expand and seek capital to fuel their growth, BDC investors have a unique opportunity to capitalize on this momentum.
At High Dividend Opportunities, we prioritize building a resilient, income-generating portfolio that thrives in all market conditions. That includes embracing opportunities in companies facing temporary headwinds, we unlock long-term value while maintaining a steady stream of income. With a robust portfolio of 45+ holdings, we remain committed to delivering sustainable dividends and financial stability—no matter the economic backdrop.
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