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THL Credit: Priced For A Dividend Cut, Driving 16.2% Yield And Continued Rally

Published Wed, 09 Jan 2019 12:08:13 -0500 on Seeking Alpha

High-yield investments and the overall financial sector were declining during the last three months of 2018 likely due to investors expecting higher yields related to fears of an economic slowdown. The following chart shows the recent performance for U.S. Financial Select Sector SPDR ETF (XLF) and UBS ETRACS Wells Fargo Business Development Company ETN (BDCS) that have both have started to rebound:

I have recently been purchasing shares of higher-quality Business Development Companies ("BDCs") with sustainable dividends and risk-averse balance sheets prepared for a potential economic downturn and/or rising interest rates. THL Credit (TCRD) is attractively priced giving it a much higher-than-average yield as shown below but I do not own for the reasons discussed in this article.

Source: SEC Filings and BDCBuzz.com
The average BDC has easily outperformed the S&P 500 so far in 2019 including TCRD and TCG BDC Inc. (CGBD) as predicted in "I Just Bought More TCG BDC, Which Is About To Rally With A Safe 13% Yield".

Upcoming TCRD Dividend Cut
There is a good chance of a ~25% dividend reduction over the next six months as shown in the Leverage Analysis at the end of this article.
Previously, I downgraded TCRD due to continued credit issues, declining net asset value (“NAV”) and portfolio yield as well as being above target leverage with expected declines in the overall size of the portfolio and investments... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
APOLLO INVESTMENT 15.13   17.8 0.85 1.80 11.90
MONROE CAPITAL 12.06   41.6 0.29 1.40 11.54
PROSPECT CAPITAL 6.58   13.2 0.50 0.72 10.89
PENNANTPARK INVESTMENT 6.92   11.5 0.60 0.72 10.44
TCP CAPITAL 14.19   18.4 0.77 1.44 10.20
HERCULES TECH GROWTH CAP 12.37   14.6 0.85 1.24 10.08
OAKTREE SPECIALTY LENDING 4.90   0.0 -1.39 0.50 10.02
ARES CAPITAL 17.03   8.4 2.02 1.60 9.41
MAIN STREET CAPITAL 37.41   13.3 2.81 2.40 6.45
MEDLEY CAPITAL 3.22   0.0 -1.63 0.20 6.17

APOLLO INVESTMENT - AINV
APOLLO INVESTMENT - AINV  


Older articles featuring Apollo Investment (AINV):
Gladstone Investment's Dividend Sustainability Analysis (Includes April-December 2019 And Fiscal 2020 Special Periodic...
Strong Buy With 12% Yield With 30%+ Return Potential: TCG BDC
Ares Capital's Dividend, NAV, And Valuation Vs. 14 BDC Peers - Part 2 (Indications Of An Undervalued Stock)
Dividend Cuts For The High-Yield BDC Sector
Dividend Increases For The High-Yield BDC Sector, Part 4: Main Street Capital
Ares Capital's Dividend, NAV, And Valuation Versus 10 BDC Peers - Part 1 (Indications Of An Undervalued Stock)
Dividend Increases For The High-Yield BDC Sector, Part 3: TPG Specialty Lending
Dividend Increases For The High-Yield BDC Sector: Part 2
Dividend Increases For The High-Yield BDC Sector: Part 1
Dividend Portfolio Review: 22% Y/Y Growth In January

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