They would have to cut the dividend of FSFR because they had already cut that of FSAM and FSC. At this time, FSC would be the most boring but its dividend can be the most stable. If they continue to kill the geese, FSC and FSFR, nothing good would happen to FSAM since its CEO holds most of the shares. Today's volume for FSAM was only 31,531, significantly lower than its daily average of 85,731, therefore I would not put too much weight on today's 3.03% drop, but even NSAM continued to drop, that tells you investors are not stupid when the market became risky.
So what is the absolute worse scenario based on NII alone to pay its dividend, without any other taxable income?
Probably about 0.72 - 0.84 per year, at today's closing price of 6.65,that would still be a 10.83% - 12.63% yield. Its downside potential? At a current 24% discount, assuming a 30% discount maximum, its possible bottom would be about 6.25.
For the quarter ended March 31, 2015, we recorded GAAP net investment income of approximately $12.3 million, or approximately $0.21 per share. In the first quarter, we also recorded net realized capital losses of $6.7 million, and unrealized appreciation of $15.2 million. In total we had a net increase in net assets from operations of approximately $20.8 million, or $0.35 per share.
Our estimated distributable net investment income ("EDNII") for the quarter ended March 31, 2015 was approximately $0.38 per share (including the effect of a $2.4 million reversal of net investment income incentive fees (equal to $0.04 per share), described below)."
Where did you get the EPS of 0.07, Yahoo? Did you even check it and confirm it? Now if it indeed made only 0.07 per share, after it paid a dividend of 0.29, how in the world did its NAV rise from 8.64 to 8.72?
Now of course all of you frequent posters in this MB already know that and of course I can be wrong.
The funny thing is I did sell off all my TICC holdings a while ago after I saw it kept dropping. I just bought back some at 6.73 on 7/1/15 and today it closed at 6.64. Interestingly, it raised its recent qrt dividend for June to 29 cents after dropping to 27 cents for March. Yet its NAV increased from 8.64 to 8.72. That got my attention. With a 24% discount and a 17.44 yield, the future upside potential of TICC, IMHO, is much higher than its downside (6% or less).
Now let us take a look at some "bad" BDC.
TICC reached its 12-mo low of 6.54 on 5/8/15, closed today at 6.65, even though today oil price dropping 8% at one point. At its closing price of 6.65, that is about a 24% discount. The curious part is it had decreased its dividend from 29 cents to 27 cents, then raised it back to 29 cents for June. Not just that, its NAV rose from 8.64 to 8.72. Its yield is now 17.44%, probably the highest among BDCs. How much lower can it drop?
Should be raised 5.35%. After reached its 12-mo low of 15.34 on 6/30/15, CPTA closed at 16.43 today, a rise of 7.1% after 3 trading days. Its actual yield for 2015 is also much higher than other BDCs including PSEC (sorry).
CPTA, my no. 3 pick, continued to tank to its 12-mo low of 15.34 on 6/30/14 and I kept telling everybody that was absurd for it to drop so LOW so fast because it not only can sustain its regular dividend, but had already declared a special dividend for Feb. to Dec.. It also has two capital gains that should either enable it to raise its future dividends or pay more SD by the end of this year. Well, on last Friday it rose 5.35 in a single day and continued to rise today. Nothing can stop a good BDC from rising and when they rise, they would rise as FAST as they dropped. Been there, done it.
However, I believe many BDCs might have reached their bottoms and were now meeting resistance (in dropping lower). Why would I say that?
Well, on 6/29, when we first heard Greece planned to default and called for a referendum, DOW dropped 350 points, yet my no. 2 BDC pick, GAIN, rose 3% on that day, continued to rise and reached its 12-mo high of 8.10 on 6/30.
My smart friend and I have been trading BDCs for a long time and saw some BDCs really tanking badly at around 2008/9, like seeing ACAS dropping to below $3, talking about a frightening experience! It was indeed interesting to see the BDC sector got hit in 2014 and then being hit hard again in 2015, due to many different reasons.
Two of the reasons that many BDCs did not fare well are probably because of a stagnant & low interest rate and a low oil price which might have affected the energy holdings of many BDCs. As a result, many BDCs had continued to make new 12-mo lows. PSEC was now traded with a 28% discount; FSC, a 29% discount; TICC, 24% discount; MCC, 23% discount; ACAS, 33% discount; KCAP, 21% discount.
How high can the discount be? Nobody really knows but we believe it should not be more than 30%.
GARS unfortunately has the lowest beta among ALL BDCs. Another real good BDC to buy is SUNS, at below $15, always rose back after it tanked, just like MAIN. MAIN would be good buys if it drops below 29.
Thanks, some time I did goof up though. But I like BDCs at their current price levels and yields. I believe there would be at least a 20% upside in 12 months. The faster the interest rate rises, the faster they would rise. I need to buy back GARS badly. This one would not wait.
In short, buying and holding FSC can indeed be excruciating boring, not as FUN as buying and holding CPTA and saw it rose 5.3% in a single day. But at my old age, I learned that BORING is GOOD, especially for investments. Unless FSC's management really mess (try to use the s word...) up (which they may), I simply cannot see they are not being able to cover its current qtr dividend of 0.18. It is also not allowed to have SPO at lower than its NAV and that may mean not for a long while since at its current price of 6.47, that is about a 29% discount (according to E*Trade). Therefore, if it drops just a few% more (do not believe it will) I will be doubling up. My smart friend and I both believe that if the BDC sector takes off, it would go up an average of 20% very rapidly, just as fast as they tanked. Now of course, we do not have perfect timing and the whole BDC sector can indeed tank more, but we can certainly live off an average 10% yield. Can you?
I did buy back FSC on 7/2/15 at 6.51 and writing this message is not really trying to pump it because I do not believe its price would really go up or drop that much until the first rate hike being announced by the Fed or if it announces a special dividend/or raise future dividend, the chance of which may also not that HIGH.
You may be better buying some FPF, the pref. stock CEF with the highest yield right now - 9.12%, and a 10.47% discount. But if there are rate hikes, it and other pref. stock CEFs may drop again but I am willing to be stuck with a 9.12% yield and would add more if it drops.
Please understand that it does not mean GAIN is not a good BDC, but at its curre price of around 8.06, its reward/risk ratio is just not as attractive as other BDCs.
My smart friend and I both agreed that a 30% discount would probably the most discount for a BDC unless it is really really RISKY and BAD.