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Fifth Street Finance Corp. Message Board

  • hpsportsfanatic hpsportsfanatic Aug 17, 2013 6:16 PM Flag

    Dividend payout

    I saw it is 107% payout. Can they keep the dividend that high? New here. Opinions?

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    • That is an excellent question and it really impressed me because you said you just started investing. Amazingly, these days most investors just started chasing yields, the higher the better, without spending any time in studying the ability of a company who continued to pay high dividend. There is simply no free lunch in life. My son-in-law bought KCAP not too long ago at 10.15 because of its high yield, disregard at that time it was selling at more thena 1.30 of its NAV. Since then, it dropped below nine. I guess he has to learn his own hard lesson.

      FSC had reduced its monthly dividend twice previously with the last one on around Nov. 16, 2011:
      "UBS maintains a 'Buy' on Fifth Street Finance (NYSE: FSC) price target cut $2 to $12.

      UBS analyst says, "Fifth Street’s decision to lower the dividend to $0.29 from $0.32 reflected two factors: 1. lower loan growth in C2Q/C3Q; 2. shift to floating rate assets and fixed rate funding in C1H11. As a result, mgt came up short of its goal to cover the dividend with net investment income (NII) which we believe was partially priced into the shares. Lowering the bar after the sector sold off positions FSC for a better 2012 should the environment improve and with a dividend adequately covered by NII beginning in C1Q12 if originations slow with the stock below NAV." "

      To me that was being responsible, unlike another BDC which has paid the highest dividend among BDCs, continued to increase its monthly dividend payout, soon its payout will reach 130% and higher, only to see its NAV continued to drop. FSC has a lot of first lien loans, already locked in low interest rate for ten years on their 225M of SBA loans (under two SBIC licenses), that guarantee them profitability for the next ten years. It has also continued to lower the interest rate of its credit facilities and many of its loans are floating. Its ability on growth of its EPS is better than most of its peers, that may reflect on its recent NAV rising from 9.71 to 9.9

      • 1 Reply to thewisejman
      • In short, I do not believe it will have difficulties in sustaining its future monthly dividend. However, if the market tanks because of bond tapering, then all BDCs will be affected, and it may drop some which will provide great opportunities for you to accumulate more. I do not advise you to put all your money on one single BDC or invest all of your money at this time. You should have at least 25% or more of your portfolio in CASH and patiently wait for buying opportunities on around Sept. and October. GL

    • Are you talking about FSC? Yield is a tad over 10% right now I think, and it pays monthly so around 9.5 cents/share each month.

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