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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
MONROE CAPITAL 10.48   18.4 0.57 1.40 13.60
PENNANTPARK INVESTMENT 6.32   21.8 0.29 0.72 11.32
PROSPECT CAPITAL 6.71   16.8 0.40 0.72 10.76
APOLLO INVESTMENT 16.78   14.2 1.18 1.80 10.73
TCP CAPITAL 13.75   29.3 0.47 1.44 10.48
OAKTREE SPECIALTY LENDING 4.90   0.0 -1.39 0.50 10.02
HERCULES TECH GROWTH CAP 13.26   10.0 1.32 1.28 9.55
ARES CAPITAL 19.19   10.5 1.82 1.60 8.39
MEDLEY CAPITAL 2.61   0.0 -1.62 0.15 5.81
MAIN STREET CAPITAL 43.18   16.8 2.57 2.46 5.69

MONROE CAPITAL - MRCC
MONROE CAPITAL - MRCC  


Older articles featuring Monroe Capital (MRCC):
Digging Into The Credit Profile For 10.7% Yielding BlackRock TCP Capital
TLT Shorts Should Be Long This 10%+ Yielding Sector
TCG BDC: 11.5% Yield And 17% Below Book
Still Waiting For A Dividend Increase From Oaktree
Assessing Risk: Retirement Portfolio Using BDCs Yielding 10%+
Building A Retirement Portfolio With BDCs Currently Yielding 10.6%
Prospect Capital: Upcoming Credit Issues And 11%+ Yielding Replacement
Yield-Starved Investors Still Accumulating BDCs Paying More Than 10% Annually
10% Yielding New Mountain Finance Receives Fitch Rating
Apollo Investment: 12% Yield Supported By Improving Portfolio Quality

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