Golub Capital BDC, Inc., (GBDC) is set up as a business development company that is focused on making debt and equity investments in middle-market companies. These companies often use the capital for growth, acquisitions, recapitalizations, refinancings, and leveraged
buyouts. Golub Capital was founded in 1994, and it has become a
nationally recognized asset management firm with over $6 billion of
capital under management as of April 30, 2012.
Like many similar business development companies, Golub Capital uses leverage to increase returns to shareholders. By borrowing money at low interest rates and then redeploying it in investments that generate higher yields, this company is able to pay shareholders a very generous return. It uses disciplined underwriting standards in order to reduce credit risk and maintain asset quality. It also reduces risks by maintaining a diversified portfolio of investments across a broad range of industries. A typical debt investment includes senior secured, unitranche, second lien, and mezzanine loans as well as investments in warrants and equity securities. Here are 3 reasons to consider buying the stock:
1) On August 15, 2012, funds managed by an institutional investment advisor purchased 462,000 shares of Golub Capital BDC, Inc. This is a sizeable investment with an estimated transaction value of over $6 million. It's also a vote of confidence as institutional investors tend to engage in a significant amount of due diligence when making larger investments.
2) Golub Capital recently reported solid financial results. For the third fiscal quarter that ended on June 30, 2012, it announced net investment income of $6.7 million, or 26 cents per share. It also reported that at the end of the quarter, the company had investments in 116 portfolio companies with a total value of $636.6 million.
3) This stock appears poised to outperform most popular dividend stocks, such as General Electric (GE). Many popular dividend stocks like General Electric are trading at or near 52-week highs. Because of that, yields have been pushed lower, and may no longer adequately compensate investors for the risk of stock ownership. For example, one bit of bad news, an earnings miss, or even a major market decline, could erase about 3% in a single day, and that is about a year's worth of dividend payments from General Electric. That's why higher yielding stocks like Golub Capital might make more sense and could outperform, over the next few years. For example, Golub Capital's over 8% yield could provide investors with nearly 25% returns from dividends alone. Over the same time period, General Electric shares might only provide about 9%. (It's also worth noting that General Electric has a finance division that also makes loans to small and medium sized businesses.)
Here are some key points for GBDC:
Current share price: $15.81
The 52 week range is $14.01 to $16
Earnings estimates for 2012: $1.16 per share
Earnings estimates for 2013: $1.31 per share
Annual dividend: $1.28 per share which yields 8.1%
Here are some key points for GE:
Current share price: $22.15
The 52 week range is $14.02 to $22.37
Earnings estimates for 2012: $1.54 per share
Earnings estimates for 2013: $1.73 per share
Annual dividend: 68 cents per share which yields 3.1%
Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.