Published Thu, 15 Apr 2021 11:45:05 on Income Investors
A High-Yield Financial Stock to Think About
Monthly dividend stocks are kind of special to passive income investors. As their name suggests, these stocks pay cash to investors on a monthly basis—as opposed to following a quarterly distribution schedule like most other dividend stocks. This makes it easier for investors to balance their dividend income with their expenses. After all, most people’s bills have to be paid every month.
But it’s important to remember that dividends aren’t carved in stone, especially when it comes to ultra-high yielders.
For instance, Oxford Lane Capital Corp (Nasdaq: OXLC) has been a high-yield monthly dividend stock for several years. At the beginning of 2020, the company had a monthly dividend rate of $0.135 per share. In light of the impacts from the COVID-19 pandemic, management reduced Oxford Lane Capital stock’s monthly payout to $0.0675 per share, starting with the July 2020 distribution. (Source: “Distributions,” Oxford Lane Capital Corp, last accessed April 14, 2021.)
Of course, dividend cuts were not uncommon across industries at the time, but the reduced payout certainly wasn’t good news for income investors.
Here’s where things got more interesting. Like most tickers, OXLC stock plunged in the pandemic-induced sell-off earlier last year. While the company’s share price has trended upward in recent months, it still hasn’t made a full recovery to its pre-pandemic level. And that means, even with the lower payout, Oxford Lane Capital stock offers a very attractive yield.
Well, with OXLC stock trading at $6.70 per share at the time of this writing, its monthly dividend rate of $0.0675 per share translates to an annual yield of 12.1%.
Oxford Lane Capital Corp is a closed-end management investment company. It invests primarily in debt and equity tranches of collateralized loan obligation (CLO) vehicles.
One thing to note is that Oxford Lane Capital is registered as an investment company under the amended Investment Company Act of 1940. That means it’s required, among other things, to distribute at least 90% of its taxable income to investors on an annual basis. This distribution requirement is one of the reasons OXLC stock has always been one of the higher-yielding names in the market.
After reducing Oxford Lane Capital stock’s monthly dividend rate to $0.0675 per share last June, the company has maintained the payout at that level. And because the yield is still very high by any standard in this market, the important question now is: can Oxford Lane Capital Corp afford the current distribution policy?
Well, in the three months ended September 30, 2020, Oxford Lane Capital generated net investment income of $0.214 per share. Its total distributions, on the other hand, were $0.2025 per share. So the company managed to outearn the payout. (Source: “Oxford Lane Capital Corp. Announces Net Asset Value and Selected Financial Results for the Second Fiscal Quarter and Declaration of Distributions on Common Stock for the Months Ending January 31, February 28, and March 31, 2021,” Oxford Lane Capital Corp, November 2, 2020.)
Note that Oxford Lane Capital also reports something called core net investment income, which is net investment income adjusted for additional applicable cash distributions received—or entitled to be received on its CLO equity investments. In the September quarter, the company’s core net investment income came in at $0.239 per share.
In the three months ended December 30, 2020, Oxford Lane Capital earned net investment income of $0.211 per share while paying three monthly dividends totaling $0.2025 per share. So again, the payout was covered. (Source: “Oxford Lane Capital Corp. Announces Net Asset Value and Selected Financial Results for the Third Fiscal Quarter and Declaration of Distributions on Common Stock for the Months Ending April 30, May 31, and June 30, 2021,” Oxford Lane Capital Corp, February 1, 2021.)
Moreover, the company’s core net investment income came in at $0.374 per share for the December quarter. So if you use that metric instead of net investment income, you would arrive at a stronger dividend coverage.
Bottom Line on Oxford Lane Capital Corp
At this point, Oxford Lane Capital Corp has already declared monthly dividends of $0.0675 per share payable on April 30, May 28, and June 30, 2021.
If the company can continue maintaining this level of payout, it could make OXLC stock a good opportunity for yield-seeking investors.
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|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|OXFORD LANE CAPITAL||9.73||0.0||0.00||1.62||16.65|
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