Published by Nikolaos Sismanis on March 5, 2023
Business development companies (BDCs) have become popular among income investors. This is because BDCs as an alternative asset class offer very high dividend yields, thanks in part to favorable tax regimes. Corporations generally achieve very high returns on their investments and pass it on to shareholders in the form of distributions.
For example, SLR Investment Corporation (SLRC) is a BDC with a current dividend yield of 10.5%. Not only are SLRC’s very high yields, more than 6x higher than the S&P 500 Index, but they also pay monthly instead of quarterly. This allows investors to compound interest even faster by paying dividends more frequently.
SLR Investment Corp. is one of the few stocks that pays dividends monthly instead of quarterly. SLRC is one of 69 monthly dividend stocks.
We have compiled a complete list of 69 monthly dividend stocks. Click the link below to download a complete Excel spreadsheet of all monthly dividend stocks (including key metrics like dividend yields and payout percentages) can.
High yields and high monthly payments make SLRC stock very attractive to income investors. But of course, investors should assess SLRC’s business quality, future growth potential, and dividend sustainability before buying shares.
In this article, we discuss SLRC’s business model and whether high dividend yields are too good.
Business overview
SLR Investment Corp. is a business development firm that invests primarily in US mid-market companies. The company has five core business units including Cash Flow, Asset Base, Life Sciences Lending, Equipment Finance and Corporate Leasing.
The Trust’s debt investments consist primarily of cash flow senior secured loans, which include first and second lien indentures. We also offer asset-based loans, including senior secured loans where the liquid assets are secured by the first mortgage.
The company trades on NASDAQ under the ticker symbol SLRC. SLRC is externally managed by SLR Capital Partners, an independent investment advisory firm founded in 2006. SLR has a team of approximately 300 employees, including more than 130 of his origination and investment professionals in his 12+ offices across the United States.
As of April 1st, in 2022, SLR Investment Corp. completed its previously announced merger with SLR Senior Investment Corp. (formerly under the ticker SUNS). SUNS merged with the surviving company SLR. Post-merger, former SLRC shareholders own approximately 77% of the company, while former SUNS shareholders now own 23% of the combined company.
In addition, SLR Capital Partners reduced the annual base management fee payable by SLRC from 1.75% to 1.50% of total assets, maintaining the annual base management fee. SLRC maintains a target leverage ratio of 0.90x – 1.25x debt to equity.
As of December 31stIn 2022, SLR Investments’ portfolio will consist of 139 companies, with 30.8% senior secured loans, 30.0% asset-based senior secured loans, 23.7% equipment senior secured loans, and 15.5% life insurance. Science Senior Secured Loan. SLR Investment Corporation is based in New York, NY and generates approximately $180 million in annual gross investment income.
BDC reported the fourth quarter and full year (the period ending December 31) of 2022.st) February 28 results. The company said he generated a net investment return of $76.4 million in 2022, an increase of 25% compared to the same period last year.
Net investment income per share (NIIPS) for the full year was $1.48, up 3.5% from $1.44 per share last year. The lower per-share growth was due to the company issuing additional shares during the year to fund portfolio expansion and finalize his merger with SUNS.
SLR Investment Corp.’s net asset value per share totaled $18.83 at the end of 2022, down 8.0% from the end of 2021.
growth outlook
SLR Investment Corporation has had volatile performance over the past decade. The pandemic had a negative impact on the company, but it was somewhat protected by such a diverse portfolio.
In the short term, the company will benefit from the recently completed merger with SLR Senior Investment Corporation. SLR Investment Corporation will have the opportunity to reduce base management fees, reduce costs through synergies, and reduce and increase borrowing costs. The net profit margin of the combined company.
The company will continue to expand its comprehensive investment portfolio. With such a large allocation to floating rate investments, the company should also benefit from the significant interest rate hikes expected in 2022 and beyond. December 31stIn 2022, SLR’s $2.9 billion investment portfolio’s weighted average asset yield was strong at 12.2%.
Portfolio growth and weighted average asset yields lead to increased net investment income, from which the company can continue to pay dividends. That said, we remain alert to the fact that payments may continue to outpace the company’s earnings unless net investment returns increase significantly.
On the bright side, the company, especially as a business development company, has not issued a significant amount of equity in the last decade. This is beneficial to shareholders as SLRC’s shares are not diluted by outstanding shares on the market.
SLR Capital has a direct origination platform to direct firms to unique investment opportunities. This involves applying a private equity approach to the underwriting process, including detailed due diligence and structuring of investment terms. A proprietary platform requires SLR Investment Corp. to capitalize on additional portfolio opportunities.
Dividend analysis
One of the reasons BDCs like SLRC are able to pay high dividends is their favorable tax regime. SLRC qualifies as a regulated investment company. As such, as long as it distributes taxable income to its shareholders, it is generally not subject to corporate tax.
SLRC is a very attractive stock for dividend investors. It currently pays a monthly dividend of $0.1367 per share. On an annualized basis, a dividend of $1.64 per share represents a current dividend yield of 10.5%.
The company pays quarterly dividends from mid-2010 through April 2022. SLRC paid a quarterly dividend of $0.60 from 2010 through mid-2013. In the first quarter of 2018, SLR Investment Corporation increased its quarterly dividend by one penny to $0.41.
The new monthly dividend of $0.1367 per share is equivalent to the previous quarterly dividend of $0.41. However, it is now being paid out more frequently, which makes compounding slightly faster.
SLRC now estimates that it will likely generate approximately $1.60 in net investment income in 2023. At this rate, the company would pay out over 100% of his net investment return in the form of dividends. This means that the dividend is unsafe and may be cut in the future.
Additionally, in 2021 and 2022, the company paid out a dividend of $1.64 while earning $1.40 and $1.44 respectively. As a result, dividends appear to have been volatile in recent years. A massive 10.5% dividend yield could indicate that shareholders are worried about future rate cuts.
final thoughts
SLR Investment Corp. recently made a major acquisition and integrated SLR Senior Investment Corp. into its company. His former SLRC shareholders now own 77% of the combined company, and his former SUNS shareholders own 23% of his SLR Investment Corporation.
This provides the company with lower management fees from its investment advisor, SLR Capital Partners, lower costs, and the opportunity to reduce borrowing costs and improve net profit margins, but the dividend remains questionable.
The current massive 10.5% yield may indicate that shareholders are wary of future dividend cuts. In fact, the company has paid him more than 100% of its net investment return in recent years and could do so again in 2023.
As long as SLR Investment Corporation over-divides, its NAV/equity may continue to deteriorate. Therefore, before considering allocating capital to stocks, make sure you are aware of the risks associated with stocks.
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