Source: Adrian Day for The Gold Report 03/28/2017
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Money manager Adrian Day reviews the business development companies in the portfolio that are held for income.
The Business Development Companies (BDCs) have retreated from their highs, after a strong rally over the past year, and particularly since the general election and renewed small business optimism. That they have not retreated more—given valuations (with many trading well above NAVs), higher interest rates, and a string of dividend cuts among more marginal BDCs—is due to the juicy yields.
Given the strong rally over the past year and the fact that the group is trading at two-year highs, we are not chasing the stocks here, but are holding.
Mixed period, with mostly good news, but equity raise dragging
Gladstone Capital Corp. (GLAD:NASDAQ, 9.01, yield 9.3%) has had a mixed recent period. Investment income is up, as is new investment activity following an equity raise in October, and the yield on investments has inched up to 11.3%, while expenses are down. The debt-to-equity ratio has improved and the company has plenty of dry powder, partly because of the equity raise and partly because of recent repayments.
The bad news is that the NAV declined again, in the most recent period because of net losses on investments and the stock offering, which was done at a discount to NAV. But the NAV has declined on an annual basis every year but one since 2007.
The company is earning its dividend, just, and that with a waiver of some fees by the advisor. The dividend has stayed static since 2009 (and that following a 50% cut in the dividend). We do not believe the dividend …read more