FDUS: 10.6% Yielding BDC Trading Below Book Value

Summary

  • FDUS has outperformed most BDCs when it comes to NAV per share growth, but declined during the recent quarter with realized losses mostly due to the exits of two investments.
  • FDUS is for higher risk investors (looking for higher yields) and does not fit my personal risk profile due to its portfolio of mostly second-lien/subordinated debt and equity investments.
  • However, these investments are responsible for most of the historical realized gains, NAV per share growth, and special dividends.
  • The stock is likely under-priced and trading 9% below book value, giving it a current regular dividend yield of 10.6% (before specials).

You can read the full article at the following link:

AINV: 10.6% Dividend Yield With Potential Book Value Upside From Oil Hedges

Summary

  • As predicted in the previous article, AINV’s NAV per share declined due to $23 million in realized losses including its hedges as oil prices headed higher and ‘legacy’ investments.
  • However, 80% of the total portfolio is now considered to be invested in its “core strategies” with 55% in first-lien and no new non-accruals.
  • Recent investments were at lower yields and likely to support “the increase in our regulatory leverage which will become effective April 2019”.
  • Management is already working with and positioning borrowers for increased leverage and will likely be in place well-before April 2019.
  • The company repurchased another 1.4 million shares during the recent quarter.

You can read the full article at the following link:

Current BDC Dividend Yields

Business development companies (“BDCs”) are currently paying dividend yields between 7% and 13% with a handful of companies that increased dividends so far this year including Ares Capital (ARCC) and Main Street Capital (MAIN) as predicted in “This High-Yielding, Sleep-Well Investment Is About To Announce A Dividend Increase“.

GBDC: Over 7% Dividend Yield Supported by Rising Rates & Quality Portfolio

Summary

  • I have been making purchases of ‘higher quality’ BDCs this year, including GBDC due to consistent dividend coverage, NAV per share growth, and special dividends, delivering higher returns to shareholders.
  • GBDC has better-than-average positioning for rising interest rates with a potential for a 10% increase in annual NII for each 100 basis point increase in the underlying rate.
  • I believe that GBDC will continue to pay special dividends to avoid excise tax and will raise capital through accretive equity offerings as needed.
  • Credit quality remains strong with low non-accruals at 0.8% of the portfolio and include the recently added PPT Management and Uinta Brewing. SUNS also has a position in PPT Management that was discussed on the recent call and will likely be added back to accrual.
  • NAV per share hit a new high, increasing by 0.2% (from $16.11 to $16.15) and has increased 23 out of the last 24 quarters, after excluding the impact from previous special dividends.

You can read the full article at the following link:

 

MRCC: Oversold With 10.6% Yield Reports This Week

Summary

  • MRCC reports Q2 2018 results this week and this article discusses what investors should be looking for, including signs of improvement in two of its portfolio investments.
  • MRCC is one of my smallest positions as I have not been purchasing additional shares, but is now showing signs of being ‘oversold’, driving a current dividend yield of 10.6%.
  • In June 2018, MRCC held its annual meeting and shareholders approved the company becoming subject to a minimum asset coverage ratio of 150%, permitting the company to double its leverage.
  • MRCC’s portfolio remains primarily of first-lien loans, representing around 86% of the portfolio as of March 31, 2018, which is generally favorable when considering higher use of leverage.

You can read the full article at the following link:

Recent MRCC Stock Performance

Monroe Capital (MRCC) is one of my smallest positions as I will not be purchasing additional shares “until there are signs of improvement or at least stabilization of its investments in Rockdale Blackhawk, LLC and TPP Operating, Inc.” as discussed in this article.

MRCC’s stock rallied from $12.80 to $14.50 after my previous public article (linked below) as shown in the following chart and its relative strength index (“RSI”) is currently at 30 indicating ‘oversold’ conditions:

GSBD: 9.4% Dividend Yield Supported By First-Lien And Strong Covenants

You can read the full article at the following link:

Summary

  • 9.4% dividend yield is excellent for a BDC with protective covenants for 90% of the portfolio, 54% is first-lien, and non-accruals decreased to 0.0% due to the restructuring of Bolttech.
  • GSBD has been trading lower, the market is likely expecting an equity offering, as the company was at its targeted leverage and trading at a premium to NAV.
  • Previously, I reduced GSBD’s short-term target price due to lower dividend coverage over the last two quarters and for my revised 2018 projections.

Quick BDC Market Update

As discussed in previous articles, business development companies (“BDCs”) have been pulling back since May 2017. The following chart uses UBS ETRACS Wells Fargo Busn Dev Co ETN (BDCS) as a rough proxy for the average BDC, many of which are near new lows (including GSBD).

Obviously, lower BDC prices have driven higher overall dividend yields with the average BDC currently yielding 10.6% as shown below. However, it should be noted that I’m expecting dividend cuts for a few of the higher yield BDCs as discussed in my recently updated Dividend Coverage Levels report.