Steady Hands, Strong Yields: The Quiet BDC Getting It Right

When you think of Saratoga Investment Corp. (NYSE: SAR), you probably picture a small-cap lender with a lofty yield.

But we’re here to let you in on a secret. There’s a lot more happening beneath the surface. This business development company (BDC )has carved out a niche in middle-market lending, generating predictable returns from a diversified portfolio of private loans.

Management’s disciplined credit approach and consistent net investment income have made it one of the most reliable payers in the high-yield space.

If you’re joining us today in search of steady, well-covered income, Saratoga’s story is worth a closer look. Pull up a seat.

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A well-oiled machine punching above its weight

Saratoga Investment Corp. isn’t a giant, but it does punch well above its weight with over 1.3 billion of assets under management.

The firm specialises in providing debt capital to U.S. middle-market companies.

That’s a smart move because this is a space often underserved by traditional banks and main street lenders.

Its portfolio is built around senior and unitranche loans, giving it priority claim on assets and helping to manage risk while still producing attractive returns.

In the most recent quarter (for Q2, FY2026), Saratoga reported a solid portfolio performance.

For example, its return on equity of 9.1% for LTM comfortably beat the industry average of 7.3%.

It also has significant levels of available cash and is on track to grow its long-term assets under management. 

With leverage kept in check and non-accruals among the lowest in its peer group, Saratoga continues to demonstrate that small size doesn’t have to mean fragile fundamentals.

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Why settle for average when extraordinary is on the table?

A yield flying above the sector average

Saratoga has quietly built one of the most attractive income profiles in the business development company space.

The firm currently pays a monthly dividend of $0.25 per share, representing a 13.78% yield. That’s well above the sector average of 3.18%.

The payout remains fully covered by net investment income and is supported by disciplined lending and careful credit monitoring.

Management has shown a clear commitment to maintaining (and gradually growing) the dividend, even through market volatility.

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A nod to market forces

Even reliable payers aren’t immune to market forces, and Saratoga Investment Corp. is no exception.

As a business development company, it remains sensitive to shifts in interest rates and credit quality across the middle market.

While higher rates have boosted income in recent quarters, they also raise borrowing costs for portfolio companies, potentially pressuring repayment capacity if economic growth cools.

Another consideration is scale.

Saratoga’s smaller size limits diversification compared to larger BDCs, making performance more dependent on management’s ability to avoid credit losses.

Any uptick in non-accruals or markdowns could test the dividend coverage cushion.

For now, those risks appear well managed, but they’re worth keeping on your radar, especially if the credit cycle turns.