Forget about dividends and dividend yield. Focus on tne NII (net operating income before gains and losses) because this is what supports the dividend.
The quarter ended 12/31/07 has a NII of $.32 which annualized to $1.28 which was 10% of the beginning NAV of $12.79. The problem is that the quarter's NII as down form the year ago quarter and the NAV declined 6.6% for the quarter from $12.79 to $11.94. The market sees these trends and reacts negatively.
It would appear that the market is over reacting. Even assuming that the NAV continues to decline during 2008 for a total of 20% to about $10.50 continuing to produce 10% NII or $1.05 per share. Assume the dividend is cut to $1.05 the yield would be 13.5% on the current market price of $7.76. In due course the market would recover to $10.50 for a 10% yield.
I am not sure that this is a worst case assumption but it appears to be close to it.
That is why I bought in at $10 but you never know. What conditions are written into the financing deal with the bank. Could it pull the plug if TICC does not perform to certain standards. Could the bank end up like Bear Stearns.
FUD rules the day, especially with financials. TICC may not be a mtg reit, but it gets its financing from the same sources, and if those sources are collapsing it keeps the FUD working on investors.
Every time you turn around there is some bad press about the financial and credit markets. Markets for securities that were considered as good as cash and have nothing to do with mortgages have dried up. People are complaining that a 30 yr fixed home mortgage with a down pmt and good credit costs 6%. Yes 6%, like it is so terrible. Banks are paying near zero interest on checking accounts.
Banks are the cause of it all. They made money cheap which allowed inflated prices for homes, etc. When prices got out of reach they created the subprime monster, like a credit card company, thinking they could jack up the interest on the resets and clean up. Well that all blew up. People like the teaser rates but walk away from the resets.
The whole thing has shifted. For an income investor what was once a good yield at 8-9-10% may now be 4-5-6 % given the alternatives. A BDC like TICC could easily cut its dividend to 50 cents and look like a good deal to a new investor at current prices. Even 10% at current prices would be .80.
Sounds crazy but who ever thought you could get a loan with no down and no doc's.
I am struggling with whether or not to buy. the riverboat gambler says go for it, the conservative that says BDC can easily go bankrupt--(larger compnies have) is wary. Probably going to put a buy order in at 6.75 and pray with some money I can afford to lose.