“Receive $1,400 on May 30 … World’s Safest 9% Dividend” Dyson

I know many of my readers are dividend fiends, and I always appreciate a buck in my pocket as much as the next guy, so I thought this latest missive from Tom Dyson at Stansberry and Associates might be worth a look.

The ad actually began as a Daily Wealth article last month — back then it was the “World’s Safest 10% Dividend”, so the stock has probably gone up a bit in the last several weeks. Lately, though, the teaser has been that you can receive a payment of $1,400 at the end of this month … if only you’ll subscribe to Tom’s 12% Letter. This letter currently runs about $50 a year, though I’m sure it also comes with plenty of teaser emails for more expensive Stansberry services if you’re interested in a fuller mailbox.

We’ve looked at the 12% Letter several times — it’s a relatively low cost newsletter that focuses on high dividend stocks, and that’s a crowded business, but they have done a great job of marketing … the 12% Letter is responsible for everyone’s favorite 801k ads, and the original Escondido Retirement Trust ad, among several other memorable ones. Don’t know their long term record, but they do hire good copywriters. They’ve also cut the price — last year this one was a $99 letter, not sure why they’ve shaved the cost, but perhaps it’s in order to get more people in the door so they can pitch their more expensive monthly dividend research service.

And this time around, they’re teasing another monthly dividend payer, a Business Development Company that has a yield in the neighborhood of 9% and that Dyson thinks is safe.

What clues do we get for this one?

Well, they do pay a monthly dividend, and the next one is due on May 30. Not sure if that’s the payment date or the ex div date, though it hardly matters in the grand scheme of things.

It’s a business development company, which are firms that essentially raise money with debt and equity offerings, and lend that money out, usually to business that are too big to find bank loans a good solution, and too small to easily issue bonds. They’re sort of the junior players in the private equity world. And yes, since you ask, they have nearly all gotten clobbered due to the credit market turmoil — which might create some opportunity if you can pick the good ones from the truly challenged ones.

BDC’s operate essentially like REITs, as far as their dividends go — they get to be tax-exempt because they pass 90% of their income on to shareholders. That means you do have to pay full income taxes on BDC dividends, generally speaking, they’re not typically eligible for the 15% dividend tax rate (this is not always true, sometimes the payouts include return of capital or qualified dividend portions, too).

Other clues?

This particular BDC lend $10 million to a big outdoor advertising firm called Lindmark last year.

That’s about it. So … ready to feed this all into the Gumshoe’s Thinkolator? The hopper’s empty, so we’re all set …

Loud chewing sound …

This is Gladstone Capital (GLAD)

GLAD is a BDC that is managed by Gladstone Management, which also manages sister funds GAIN (private and public equity in small companies) and GOOD (commercial real estate).

They do really have a current 9% yield, and they do pay monthly (all the Gladstone funds appear to do so).

So what should we know about them?

Well, they’re managed by Gladstone, and they (and indirectly, their shareholders) pay a pretty hefty fee for that management before your returns and dividends are calculated — last time I checked they had a typical hedge fund fee structure, so they get 2% of assets and 20% of investment returns. That’s quite a bit. It’s comparable to similar funds from Apollo (like AINV) and others in that light that are managed by outside firms, but it tends to be quite a bit more expensive, management-wise, than the much larger BDCs like American Capital (ACAS) and Allied Capital (ALD), which are internally managed (so I suppose you’d have to consider their SG&A to be their “management fee”).

The dividend should be paid around the end of this month, as it is every month, but the ex date is probably the 18th,