Sixth Street Specialty

TSLX

Market cap $2.03B

BDCs have recently suffered a significant downside volatility. There is indeed a justified reason for system-wide valuation adjustments. Yet, for some BDCs the market has gone too far, while for some the necessary level correction has not yet happened.

The Investment Committee give you their top stocks to watch for the second half.

NEW YORK--(BUSINESS WIRE)--Sixth Street Specialty Lending, Inc. (NYSE: TSLX) (“TSLX” or “the Company") announced today that it will release its financial results for the third quarter ended September 30, 2025 on Tuesday, November 4, 2025, after the market closes. TSLX invites all interested persons to its webcast / conference call on Wednesday, November 5, 2025 at 8:30 a.m. Eastern Time to discuss these results. Conference Call Information: The conference call will be broadcast live in listen-o.

BDCs have already experienced a notable correction. The sector median P/NAV metric indicates ~12% discount to NAV. Many players are priced even below that.

Sixth Street Specialty Lending has outperformed peers, maintaining strong fundamentals and dividend coverage despite sector headwinds from lower interest rates. TSLX's premium valuation reflects market confidence, supported by robust spillover income, improved leverage, and resilient portfolio quality. While dividend safety remains high, TSLX's heavy floating rate exposure poses risks if rates decline further, potentially impacting earnings and share price.

I believe the current administration will prioritize broad growth over fighting inflation, creating a rare, bullish environment for certain stocks. Economic indicators show growth is bottoming, inflation remains sticky, and recent policies set the stage for cyclical opportunities to thrive. I see a perfect setup for select companies to deliver strong income and total returns, and I'm closely monitoring this environment for action.

Q2 earnings confirmed my call for a market rotation in BDCs; quality bias and selectivity remain critical for outperformance. Structural headwinds—spread compression, falling base rates, and thin dividend coverage—signal elevated risk of further dividend cuts across the sector. Current sector repricing is insufficient for broad new BDC allocations; most remain unattractive except for select names with strong fundamentals.

We take a look at the action in business development companies through the first week of August and highlight some of the key themes we are watching. BDCs underperformed despite strong early earnings, with sector valuations dipping below historical averages. Tight lending spreads continue to pressure BDC net income.

High yield dividend stocks are the personal favorite of investors who want both consistent income and long-term growth.

Sixth Street Specialty remains a top BDC player for its defensive portfolio, strong diversification, and reliable dividend coverage, consistently delivering solid total returns. The company's NAV per share continues to grow, and dividend coverage is robust, even as the sector focus shifts from credit quality to dividend sustainability. Lower interest rates have reduced income potential, but improved credit quality and the potential for increased deal flow partially offset the negatives.