Business development companies (BDCs) have gained popularity in recent years, but they still don’t get as much attention as they should. Which is too bad, because they pay life-changing (no exaggeration here) dividends.The two we’ll look at below yield more than 12.9%. In other words, drop $10,000 in and you’re getting $1,290+ back in dividends every year.That makes BDCs useful tools for retirees. They’re also a “best friend” to what I’ll call “middle market” companies—those that are too big to borrow from a local bank but too small to interest big, institutional players like, say, a Goldman Sachs (GS).So it’s no surprise that BDCs have started to make it on to the mainstream crowd’s radar. But—these days especially—we do need to be careful with them.I’ll get into why—and why I prefer another high-yielding asset class to BDCs right now—in a second. But for starters, let me just say that it’s vital to avoid BDCs with two main flaws: 1) Those that are too specialized in one sector and/or 2) Those that are saddled with sky-high management fees.Let’s start with that first point—a BDC too focused on one sector. We’ll do that by looking at the 16.6%-yielding (!) TriplePoint Venture Growth BDC Corp. (TPVG), which mainly lends to companies in the tech sector. Trouble is, on a total-return basis—so including reinvested dividends—the fund is down 15% this year, as of this writing.This in a year where tech in general is up over 21%, as measured by the Vanguard Information Technology ETF (VGT) index fund. You’d have been better off buying the ETF—or better still, the high-yielding tech-focused closed-end fund (CEF) we’ll get to shortly!Mainstream Tech ETF Crushes Tech-Focused BDC (Despite Its 16.6% Dividend)Now let’s talk about that second “BDC trap,” which is very easy to miss: high management fees.As I said a second ago, BDCs’ borrowers are usually too small for big banks to take on, but that hasn’t stopped big banks from getting into the game by launching their own BDCs. Even Goldman has its own BDC—the unimaginatively named (and 12.9%-yielding)Goldman Sachs BDC (GSBD).This one launched a decade ago and has trailed the S&P 500 by a huge margin.S&P 500: 1, GSBD: 0Beyond that, the BDC charged about 3.9% in fees ($35.2 million in base fees and $23.9 in incentive fees on about $1.5 billion in assets) in 2024, and a similarly high fee bill is accruing for investors in 2025. With so much in fees going to management, it’s tough for the portfolio to generate enough to cover the dividend, too.Yet many investors overlook that, distracted as they are by GSBD’s outsized yield.Income investors who want to boost the yield in their portfolio buy BDCs in the hopes that these companies can keep maintaining those big payouts by doing bigger deals that cover their ongoing expenses.That does work sometimes, but not all the time. In the cases of both GSBD and TPVG, we saw dividends remain reliable—until quite recently.TPVG, for its part, cut its regular dividend last year, and as a result, shareholders are getting less than they were expecting. Thus, the BDC’s 16.6% yield looks good today, but it will get smaller tomorrow—and the shares could drop again when that happens.Thus GSBD seems safer, since its payouts have actually gone up since its IPO. But this is an illusion. If you look at the company’s income statement, you see the problem.Source: US Securities and Exchange CommissionIn the first six months of 2025, GSBD earned $94.1 million in investment income, which comes out to about a 12.4% annualized return on the fund’s net assets. At a 12.9% yield, GSBD is coming up just shy of covering the dividend.Except the net increase in GSBD was much less than that because of a $125-million loss in its portfolio, meaning the net annualized return for the good loans in its portfolio after accounting for losses on the bad loans was 9.4%, still good and enough to cover much of the dividend—but not all.In fact, if this keeps up, about 40 cents per share of dividends will need to be slashed—lowering GSBD’s yield from its 13% level to more like 9%.Forget GSBD and TPVG: This CEF Is a Much Safer PlayI’m not saying all BDCs are risky—just that we need to pay close attention to not only how they are run but who they lend to. BDCs can run afoul of situations like First Brands, an auto parts supplier that recently declared bankruptcy. In all, 14 BDCs were invested in the firm (but not GSBD and TPVG).This is not a risk that affects CEFs that invest in blue chip stocks. Consider, for example, a tech-focused CEF called the Columbia Seligman Premium Technology Growth Fund (STK), which has done three impressive things over the last decade. First, the fund (in blue below) has beaten both the S&P 500 (in orange) and GSBD (in purple) as of this writing.STK Outruns Stocks and Its BDC “Cousin”Second, its 5% dividend not only has never been cut—it’s also been bolstered by several special dividends (the spikes and dips in the chart below) over time.STK’s Special Dividend Parade Keeps RollingFinally, it’s done this by holding liquid, conservative mega-cap names like Apple (AAPL), Amazon.com (AMZN) and Cisco Systems (CSCO).And even after its recent run, STK is cheap, trading at a 5.3% discount to net asset value (NAV, or the value of its underlying portfolio) as I write this. That’s far below its five-year average of a 3.1% premium, setting up a nice (and rare) opportunity to buy its portfolio of top-notch tech stocks for 95 cents on the dollar.With fewer risks, bigger returns and a generous yield, STK is a compelling alternative to a BDC focusing on the same sector, like TPVG. And STK’s dividend is actually small compared to that of the average CEF, which yields 8.4%. That means you can boost your yield with other, higher paying CEFs without increasing your risk.4 Funds With Safe Dividends That 2X STK’s PayoutAs I just said, there are plenty of yields in CEF-land that are far bigger than STK’s 5%. And they’re just waiting for us to buy them at a bargain.Yes, at a bargain—even in today’s overinflated market!For example, the top 4 CEFs I’m urging investors to buy now yield a stout 9.5% on average. And they throw off those rich dividends whether the market is melting up or melting down.And as I just said, these funds (which hold bonds and stocks from companies you know well) are cheap—so much so that my research suggests 20%+ price upside, on average, from them in the coming year.And that’s in addition to the rich 9.5% payouts we’ll collect!***Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."