High-Yield BDCs: Why Blackstone Secured Lending Outpaces Morgan Stanley Direct Lending for 2026

The high-yield business development company (BDC) sector remains a cornerstone for income-focused investors, but not all BDCs are created equal. As we approach 2026, the sustainability of dividends and the potential for growth hinge on two critical factors: dividend coverage and forward yield expectations. By dissecting the latest data on Blackstone Secured Lending (BXSL) and Morgan Stanley Direct Lending (MSDL), it becomes clear that BXSL offers a more compelling long-term income strategy.

Dividend Coverage: BXSL's Stronger Earnings Cushion

Dividend coverage-the ratio of net investment income (NII) to declared dividends-is the bedrock of dividend sustainability. For Q3 2025, BXSL reported NII of $0.82 per share, comfortably exceeding its $0.77 per share dividend, resulting in 106% coverage according to Q3 2025 results. This outperformed MSDL, which maintained a 100% coverage ratio with $0.50 per share NII and a $0.50 per share dividend as reported in financial results.

BXSL's robust coverage is underpinned by its record-breaking new investment activity of $1 billion in Q3 2025-the highest since Q4 2024-and a portfolio with low non-accruals (just 120 basis points) as detailed in Q3 results. In contrast, MSDL's leverage ratio of 1.17x (debt-to-equity) suggests limited room for aggressive growth without risking overexposure as reported in financial results. While both funds are well-positioned, BXSL's earnings margin provides a buffer against economic volatility.

Analyst Sentiment: BXSL's Aggressive Growth vs. MSDL's Defensive Stance

Analyst sentiment for MSDL leans cautiously optimistic, with management emphasizing defensive positioning and disciplined capital allocation according to analyst commentary. The fund's focus on first lien debt (96% of the portfolio) and a 40% loan-to-value ratio at fair value underscores its conservative approach as reported in analyst analysis. However, this caution comes at the cost of growth.

BXSL, meanwhile, is being praised for its aggressive deployment strategy. Co-CEOs Brad Marshall and Jonathan Bock highlighted the fund's ability to capitalize on a "robust origination engine," with Q3 2025 earnings beating consensus estimates by $0.04 per share as reported in earnings announcement. Analysts project BXSL's 2026 earnings to reach $3.30 per share, reducing its payout ratio to 93.3% from the current 101.3% according to market projections. This trajectory suggests BXSL can sustain its $3.08 annual dividend while reinvesting in high-yield opportunities.

Forward Yield: BXSL's Edge in a Competitive Landscape

While MSDL's portfolio yields 9.7% at cost and 9.9% at fair value as reported in financial analysis, BXSL's forward yield expectations remain unquoted in the latest reports. However, analyst projections imply a sustainable payout for 2026, given its strong earnings growth and disciplined portfolio management according to market forecasts. For context, similar BDCs like Oaktree Specialty Lending (OCSL) offer a 12.01% yield but come with elevated risks such as thin dividend coverage and rising non-accruals as detailed in analyst report. BXSL avoids these pitfalls while maintaining a high-yield profile.

MSDL's consistent $0.50 per share dividend is reliable, but its modest leverage and defensive positioning limit upside potential. In contrast, BXSL's ability to scale new investments-$1 billion in Q3 alone-positions it to capitalize on the current low-interest-rate environment and expanding middle-market lending opportunities.

Conclusion: BXSL for Growth, MSDL for Stability

For investors prioritizing dividend sustainability and growth, BXSL is the clear winner. Its superior earnings coverage, aggressive deployment strategy, and analyst projections for 2026 make it a high-conviction play in the BDC space. MSDL, while a solid defensive holding, lacks the growth catalysts to outperform in a sector increasingly driven by innovation and scale.

As always, the key is to balance risk and reward. BXSL's edge lies in its ability to deliver both.