BIZD distribution slashed 50% to $0.24 as Fed rate cuts squeeze BDC income

The VanEck BDC Income ETF cut its July distribution to $0.24 a share, half the $0.48 paid in April.

"BDCs face a more challenging earnings environment driven by lower base rates and tighter spreads," Blue Owl Capital CEO Craig Packer said after his firm cut its base dividend 16% on May 5.

The fund's forward annualized payout has reset to $0.96, compared with a trailing $1.52 — a 37% gap that inflates yield calculations for investors relying on historical data. BIZD tracks the MVIS US Business Development Companies Index, holding a basket of publicly traded BDCs that lend to middle-market firms at floating rates over SOFR. The Fed's 75 basis points of cuts since September 2025, taking the target to 3.75%, compresses net interest income at the source.

The distribution cut signals broader stress across the BDC sector. Blackstone Secured Lending now covers its $0.77 dividend at exactly 100% net investment income, with non-accruals surging to 3.1% of fair value from 0.6% a quarter earlier. Ares Capital held its $0.48 dividend for the eighth straight quarter but core EPS of $0.47 fell a penny short, while Main Street Capital remains the anchor with $1.00 in distributable NII covering its $0.26 monthly payout plus a $0.30 quarterly supplemental.

BIZD is down 14% over the past year and 6% year to date. The fund's trailing 12-month yield of roughly 11.7% against a $13 share price masks the reality that the forward annualized rate has already stepped down to about 7.4%.

Blue Owl Capital's board on May 5 dropped the base dividend from $0.37 to $0.31, a 16% reduction. Adjusted EPS of $0.31 now exactly matches the new payout, leaving zero buffer. Shares are down 15% over the past year.

Blackstone Secured Lending reported net investment income of $0.77 per share, covering the dividend at exactly 100%, down from 104% in the fourth quarter. New investments are being originated at 7.7% while assets rolling off yielded 9.1%, mechanically compressing future income. Non-accruals jumped to 3.1% of fair value from 0.6% a quarter earlier.

Ares Capital, the largest BDC by market cap at $13.48 billion, held its quarterly dividend at $0.48 for the eighth straight quarter. First-quarter core EPS of $0.47 missed by a penny, but net investment income of $0.55 per share provides cushion. Non-accruals ticked up to 2.1% from 1.8%. A $1.8 billion investment backlog and $6 billion in liquidity support the payout.

Main Street Capital is the fund's strongest holding. Distributable net investment income of $1.00 per share comfortably covers the $0.26 monthly regular plus a $0.30 quarterly supplemental, now paid for 19 consecutive quarters. NAV per share rose to about $33.

For income investors, BIZD's payout is at risk of further reductions. OBDC has finished cutting for now, but BXSL is running at 100% coverage with rising non-accruals, and ARCC's cushion is thinner than a year ago. The next catalyst is the Fed's September meeting, where another rate cut would further compress BDC net interest margins.

This article is for informational purposes only and does not constitute investment advice.