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Double-digit yields look irresistible… but there are hidden risks few income investors truly understand. Business Development Company dividends are about to change – here's what everyone is missing.

System-wide BDC dividend cuts are highly likely as base dividend coverage averages 99% and growth is constrained. As a result, many BDC investors have decided to sit on the sidelines until the expected dividend cuts materialize. The idea is that a cut will lead to a negative share price reaction and thus provide a better opportunity to buy at a bargain price.

There are multiple risks for your BDC investments now and three that specifically create risk for certain BDCs. Business development companies offer high yields but carry significant, often misunderstood risks, especially in falling interest rate environments. Volatile interest rates can damage BDC profitability and distributable income, causing dividend cuts and share price declines.

Bruni J V and Co. Co. lifted its stake in Oaktree Specialty Lending Corp. (NASDAQ: OCSL) by 12.4% during the third quarter, according to the company in its most recent Form 13F filing with the SEC. The fund owned 2,487,019 shares of the credit services provider's stock after acquiring an additional 274,667 shares

One BDC quietly compounded wealth while the other barely moved the needle. The headline yield isn't the real story; this hidden metric is. A massive valuation gap exists, but only one looks built for the long haul.