Unveiling Saratoga Investment Corp's Dividend Sustainability: A Deep Dive
An In-depth Analysis of Saratoga Investment Corp's Dividend Performance and Future Prospects
Saratoga Investment Corp (NYSE:SAR) recently announced a dividend of $0.71 per share, payable on 2023-09-28, with the ex-dividend date set for 2023-09-13. As investors look forward to this upcoming payment, the spotlight also shines on the company's dividend history, yield, and growth rates. Using the data from GuruFocus, let's deep dive into Saratoga Investment Corp's dividend performance and assess its sustainability.
Understanding Saratoga Investment Corp's Business Model
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Saratoga Investment Corp is a specialty finance company that provides customized financing solutions to U.S. middle-market businesses. The company invests in senior and unitranche leveraged loans and mezzanine debt and, to a lesser extent, equity issued by private U.S. middle-market companies, which it defines as companies having annual earnings before interest, taxes, depreciation and amortization (EBITDA) under $50 million, both through direct lending and through participation in loan syndicates.
Tracing Saratoga Investment Corp's Dividend History
Saratoga Investment Corp has maintained a consistent dividend payment record since 2007. Dividends are currently distributed on a quarterly basis. Below is a chart showing annual Dividends Per Share for tracking historical trends.
Unpacking Saratoga Investment Corp's Dividend Yield and Growth
As of today, Saratoga Investment Corp currently has a 12-month trailing dividend yield of 9.80% and a 12-month forward dividend yield of 10.43%. This suggests an expectation of increased dividend payments over the next 12 months.
Over the past three years, Saratoga Investment Corp's annual dividend growth rate was 1.00%. Extended to a five-year horizon, this rate decreased to 0.30% per year. Based on Saratoga Investment Corp's dividend yield and five-year growth rate, the 5-year yield on cost of Saratoga Investment Corp stock as of today is approximately 9.95%.
Evaluating Saratoga Investment Corp's Dividend Sustainability
To assess the sustainability of the dividend, one needs to evaluate the company's payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of 2023-05-31, Saratoga Investment Corp's dividend payout ratio is 1.13. This may suggest that the company's dividend may not be sustainable.
Saratoga Investment Corp's profitability rank, offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks Saratoga Investment Corp's profitability 4 out of 10 as of 2023-05-31, suggesting the dividend may not be sustainable. The company has reported positive net income for each of the years over the past decade, further solidifying its high profitability.
Assessing Saratoga Investment Corp's Growth Metrics
To ensure the sustainability of dividends, a company must have robust growth metrics. Saratoga Investment Corp's growth rank of 4 out of 10 suggests that the company has poor growth prospects and thus, the dividend may not be sustainable.
Revenue is the lifeblood of any company, and Saratoga Investment Corp's revenue per share, combined with the 3-year revenue growth rate, indicates a strong revenue model. Saratoga Investment Corp's revenue has increased by approximately -23.60% per year on average, a rate that underperforms approximately 79.66% of global competitors.
The company's 3-year EPS growth rate showcases its capability to grow its earnings, a critical component for sustaining dividends in the long run. During the past three years, Saratoga Investment Corp's earnings increased by approximately -29.90% per year on average, a rate that underperforms approximately 81.36% of global competitors.
Lastly, the company's 5-year EBITDA growth rate of -5.60%, underperforms approximately 80.55% of global competitors.
Concluding Thoughts
In conclusion, while Saratoga Investment Corp has a commendable history of consistent dividend payments, its current payout ratio and growth metrics suggest potential challenges in sustaining these dividends in the long run. It is imperative for investors to consider these factors while making investment decisions. GuruFocus Premium users can screen for high-dividend yield stocks using the High Dividend Yield Screener.
This article first appeared on GuruFocus.
