What's not to love about business development companies like American Capital Ltd. ?

They're required by law to pay out all of their income. Dividend yields frequently top an eye-popping 10% per year, as has been the case at Apollo Investment Corporation . And many, including rockstars like Ares Capital Corporation , have trounced the market since their IPO. 

What could go wrong?


In the following video, Motley Fool Bureau Chief David Hanson and Fool contributor Jordan Wathen discuss some inherent weaknesses in the BDC model, which are best exemplified in some of the longest-living BDCs on the market today.

Dividend stocks with growth potential
A proper dividend portfolio can reward investors not just with income, but stock appreciation. That's why high-yielding dividend stocks have crushed their non-dividend paying peers in total returns throughout history. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

  

The article The Downside of 10% Dividend Yields originally appeared on Fool.com.

Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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