Solar Capital's Dividend Sustainability Analysis Through 2020 (Includes Current Recommendation And Price Target)

Summary

  • A growing number of readers have asked that I expand my detailed dividend sustainability "main ticker" articles to cover more BDC stocks throughout the year.
  • This article analyzes SLRC's dividend sustainability by performing three tests based on historical and projected quarterly results. This should be considered a yearly "checkup".
  • The first test analyzes SLRC's NII which is based on GAAP while the next two tests analyze SLRC's net ICTI and cumulative UTI which are based on IRC methodologies.
  • Summarized results from the three tests performed, including a projection of SLRC's quarterly dividend for 2020, are stated within the "Conclusions Drawn" section of the article.
  • I currently believe SLRC remains attractively valued as my price target is approximately 20% higher versus the company's current stock price.
  • This idea was discussed in more depth with members of my private investing community, The REIT Forum. Get started today »

Author's Note: Hi readers. This is my 500th article on Seeking Alpha. I just wanted to provide a quick note about this "milestone" per se. As my long-term readers know, I only write 1-2 articles per week. I have always prioritized "quality over quantity" when it comes to my articles. As such, it's taken nearly 7 years to reach 500 articles. As most of my long-term readers also know, I have a full-time professional career. Simply put, I would not have continued providing these types of high-quality articles through Seeking Alpha if I did not receive the type of overwhelming support/feedback from a wide array of readers. This spectrum has ranged from your "average Joe" to investment/industry professionals and company representatives. This support is the "driving force" to continue providing these types of articles in the future.

In the end, I am glad many readers have either enhanced their overall returns or minimized their overall losses by getting more accustomed to a particular stock/sector through my articles. For readers that have followed my own personal investing strategies (via my recommendations), a vast majority have been pleased in the end which gives me a smile at the end of the day. I just wanted to say thanks for all the support I have received over the years and I hope I can continue providing these types of articles in the future.

Focus of Article:

The focus of this article is to provide a detailed analysis with supporting documentation (via three tests) on the dividend sustainability of Solar Capital Ltd.'s (NASDAQ:SLRC) over the foreseeable future. This analysis will be provided after a brief overview of SLRC's regulated investment company ("RIC") classification per the Internal Revenue Code ("IRC"). The first test will focus on SLRC's net investment income ("NII"). This test will be termed "TEST 1". The next two tests will focus on SLRC's net investment company taxable income ("ICTI") and cumulative undistributed taxable income ("UTI"). These two tests will be termed "TEST 2" and "TEST 3". At the end of this article, there will be a conclusion based on the results obtained from TEST 1, TEST 2, and TEST 3 about the dividend sustainability of SLRC through 2020. I will also provide my projection regarding SLRC's quarterly dividend per share rate range during 2020.

Understanding the tax and dividend payout characteristics of SLRC will provide investors with an overall better understanding of the business development company ("BDC") sector as a whole. From reading this article, investors will better understand how a RIC per the IRC comes up with the company's current dividend per share rate and specific signs when an impending increase or decrease should occur. Periodically, I have covered other sector peers' IRC metrics via similar articles. I plan on continuing to cover this specific topic for the fourteen other BDC peers I currently cover.

Discussion of SLRC's RIC Classification per the IRC:

As a BDC, SLRC elects to be treated as a RIC under Subchapter M of the IRC. To continue to qualify annually as a RIC, the IRC requires SLRC to meet certain "source-of-income" and "asset diversification" requirements. These requirements are beyond the scope of this article and will not be mentioned again. There is one specific provision that pertains to SLRC's dividend sustainability that should be discussed. As a RIC, SLRC is required to distribute to shareholders at least 90% of the company's ICTI and net capital gains (in excess of any capital loss carryforward balance; if applicable) in any given tax year in order to be eligible for the tax benefits allowed in regards to this type of entity. This is a very similar taxation treatment when compared to a real estate investment trust ("REIT") entity. If SLRC qualifies to be taxed as a RIC, the company avoids double taxation by being allowed to take a dividends paid deduction at the corporate level.

Several book to tax adjustments need to be determined to properly convert SLRC's earnings per share("EPS") figure to the company's ICTI. Once SLRC's ICTI is known, one adds all net capital gains to this figure (if a capital loss carryforward balance does not exist). Net capital gains consist of realized short-term net capital gains in excess of realized long-term net capital losses for each tax year. Since SLRC had a modest capital loss carryforward balance as of 9/30/2019, this balance will likely continue to remain $0 over the foreseeable future, even if the company realizes some net capital gains on its debt/equity investments.

After this calculation, SLRC's net ICTI figure is known which is also known as the company's annual distribution requirement ("ADR"). Regarding SLRC's ADR, the company has an additional option available if it fails to distribute 90% of its net ICTI within a given year. SLRC is allowed to carryover its net ICTI into the following year and pay an excise tax of 4% regarding the current year's UTI. However, SLRC needs to distribute the company's remaining net ICTI for a given tax year through declared dividends prior to the filing of its tax return for that applicable year. This is also known as the spillback provision which SLRC has continued to utilize. If SLRC fails to comply with this provision, excluding one extraordinary measure that is not applicable to SLRC (hence deemed unnecessary to discuss within this particular article), the company would be declassified as a RIC per the IRC. If this were to occur, all of SLRC's net ICTI would be subject to taxation at regular corporate tax rates at the company level.

Two Main Factors SLRC Considers Regarding Dividend Distributions:

I believe SLRC's dividend is mainly based on the following two factors:

First Factor: Intend to cover the company's dividend payout level with NII

Second Factor: Intend to cover the company's annual dividend payout level with net ICTI/cumulative UTI

The first factor will focus on SLRC's NII and be analyzed via TEST 1. The second factor will focus on SLRC's net ICTI and cumulative UTI and be analyzed via TEST 2 and TEST 3, respectively. Readers should understand these distinctions as the three tests are provided below.

First Main Factor - Intend to Cover the Company's Dividend Payout Level with NII:

To test management's first main factor, I believe it is necessary to analyze and discuss SLRC's prior annual NII figures to see if the company's dividend distributions were covered. I also believe it is desirable to analyze and discuss my projected SLRC NII figure for 2019 and 2020 to see if the company's projected dividend distributions through 2020 will be covered.

Table 1 below shows SLRC's reported annual NII from 2016-2018. Table 1 also shows my projected SLRC NII for 2019 (thus my projection for the fourth quarter of 2019) and 2020. This table compares SLRC's NII figure to the company's dividend distributions figure showing the annual underpayment (overpayment).

Table 1 - SLRC Annual NII Analysis (Based on GAAP)

SLRC Annual NII Analysis(Source: Table created entirely by myself, partially using SLRC data obtained from the SEC's EDGAR Database)

Table 1 will be the main source of information as TEST 1 is analyzed below. Now let us begin SLRC's dividend sustainability analysis.

TEST 1 - Annual NII Versus Annual Distributions Analysis:

  • See Red References "C, D, E, (D / C)" in Table 1 Above Next to the December 31, 2020 Column

Using Table 1 above as a reference, I take SLRC's annual "NII" figure (see red reference "C") and subtract this amount by the annual "distributions from NII" figure (see red reference "D"). If SLRC's red reference "C" is greater than the company's red reference "D", then SLRC technically had enough annual NII to pay out the company's dividend distributions for a particular year. If SLRC's red reference "C" is less than the company's red reference "D", then the company technically did not have enough annual NII to pay out its dividend distributions for a particular year.

TEST 1 - Analysis and Results:

Still using Table 1 above as a reference, SLRC reported annual NII of $71.1, $68.4, and $74.9 million for 2016, 2017, and 2018, respectively. In comparison, SLRC had annual dividend distributions of ($67.6), ($67.6), and ($69.3) million, respectively. When calculated, SLRC had an annual underpayment of NII of $3.5, $0.8, and $5.6 million (rounded) for 2016, 2017, and 2018, respectively. This calculates to an annual dividend distributions payout ratio of 95%, 99%, and 93%, respectively (see red reference "(D / C)"). As such, SLRC had a very minor underpayment (at or greater than 95% but less than 100% payout) during 2016 and 2017 while having a minor underpayment (at or greater than 90% but less than 95% payout) during 2018. When combined, over the span of three years, SLRC had a dividend distributions payout ratio of 95% which I classify as a very minor underpayment. It should also be noted this includes the fact SLRC increased the company's quarterly dividend from $0.40 to $0.41 per share beginning in the first quarter of 2018.

Moving to 2019, SLRC reported NII of $18.5, $18.4, and $18.4 million for the first, second, and third quarters of 2019, respectively. I am projecting SLRC will report NII of $17.7 million for the fourth quarter of 2019. This projected minor NII decrease is directly associated with the recent decrease of the London Interbank Offered Rate ("LIBOR") which has negatively impacted SLRC's floating-rate debt investments (decrease in effective interest rates). This has negatively impacted sector investment portfolios to varying degrees. This should be considered a "cautious" estimate. When combined, I am projecting SLRC will report annual NII of $73.0 million for 2019. In comparison, I am projecting SLRC will have dividend distributions of ($69.3) million. When calculated, I am projecting SLRC will have an annual underpayment of NII of $3.7 million for 2019. This calculates to an annual dividend distributions payout ratio of 95%. This is very consistent when compared to the prior several years.

Moving to 2020, I am projecting SLRC will report annual NII of $70.5 million. This projection assumes LIBOR will remain at or near current levels over the foreseeable future (through the end of 2020). In comparison, I am projecting SLRC will have annual dividend distributions of ($69.3) million. When calculated, I am projecting SLRC will have an annual underpayment of NII of $1.2 million for 2020. This calculates to an annual dividend distributions payout ratio of 98%. Again, this projection would equate to a consistent, very minor-minor underpayment of NII.

In my opinion, considering TEST 1 on a "standalone basis", this evidence supports the notion there could be some slight pressure for SLRC to slightly reduce the company's dividend per share rate heading into 2020 (since I am only projecting a very minor-minor underpayment of NII for 2019-2020). However, TEST 1 does not specifically account for SLRC's net ICTI figures/cumulative UTI balances (based on IRC methodologies). As will be discussed below, SOLELY looking at SLRC's NII as a dividend sustainability metric is a preliminary "rush to judgement" and has led and will continue to lead, to inaccurate projections (pointing this out for other contributors and market participants). As such, TEST 2 and TEST 3 will now be performed to gain further clarity on SLRC's dividend sustainability.

Second Main Factor - Intend to Cover the Company's Annual Dividend Payout Level with Net ICTI/Cumulative UTI:

To fully understand and accurately project a BDC's dividend sustainability, readers must understand the subtle, yet identifiable differences between a company's NII and net ICTI figures/cumulative balances. Simply put, due to temporary and permanent tax/book differences, there continues to be a "de-coupling" of SLRC's NII and net ICTI which gradually widens the gap between the company's cumulative undistributed NII (deficit) and cumulative UTI balances. As such, readers/contributors not considering IRC methodologies greatly lower the probability of providing accurate projections over a prolonged period of time. Since this is such an important concept to understand, let us briefly discuss this distinction.

NII is a Generally Accepted Accounting Principles ("GAAP") figure which is based on the accrual method of accounting. ICTI and net ICTI are IRC figures which are "generally" based on the cash method of accounting (some exceptions to this notion [for instance payment-in-kind income and differing depreciation/amortization time tables] but I am keeping it simple for this discussion). Income and expense recognition of certain accounting transactions differ between GAAP and the IRC (book versus tax accounting treatments). A majority of SLRC's book to tax differences (either temporary or permanent in nature) consists of the following: 1) deferred financing fees on loans and deferred offering costs in relation to equity offerings; 2) unrealized investment gains (losses) per GAAP (non-realizable per the IRC); 3) expenses not currently deductible; and 4) income tax (provision) benefit of certain subsidiaries. There are several additional book to tax adjustments that SLRC periodically recognizes. However, for purposes of this "free to the public" article, further discussion of these additional adjustments is unwarranted.

To test SLRC's second factor, I believe it is necessary to analyze and discuss the company's historical annual net ICTI figures to see if the company's annual dividend distributions were being covered. This will lead to a better understanding of the overall trends regarding this particular metric and possible pitfalls that may arise in the future. This includes SLRC using the company's cumulative UTI balance on any annual net ICTI overpayments. I also believe it is desirable to analyze and discuss my projected SLRC annual net ICTI figure for 2019-2020 to see if the company's projected dividend distributions will be covered.

By using this methodology, I have consistently provided highly accurate dividend projections within the BDC sector over multiple years (including the most accurate projections on Seeking Alpha). Table 2 below shows SLRC's annual net ICTI for 2016-2018 and my projection for 2019-2020.

Table 2 - SLRC Annual Net ICTI and Cumulative UTI Analysis (Based on IRC Methodologies)

SLRC Annual Net ICTI and Cumulative UTI Analysis(Source: Table created entirely by myself, partially using SLRC data obtained from the SEC's EDGAR Database)

All figures within Table 2 above for 2016-2018 are checked and verified, either directly or through reconciliations, to various spreadsheets and data from SLRC's supporting documentation (excludes all ratios). Table 2 will be the main source of information as TEST 2 and TEST 3 are analyzed below.

TEST 2 - Annual Net ICTI Versus Annual Distributions Analysis:

  • See Red References "E, F, G, (F / E)" in Table 2 Above Next to the December 31, 2020 Column

Using Table 2 above as a reference, I take SLRC's annual "net ICTI" figure (see red reference "E") and subtract this amount by the annual "distributions from net ICTI" figure (see red reference "F"). If red reference "E" is greater than red reference "F", then SLRC technically had enough annual net ICTI to pay out the company's dividend distributions for that particular period of time. Any excess net ICTI left over, after accounting for SLRC's dividend distributions, is added to the company's cumulative UTI balance. This particular balance will be analyzed within TEST 3 later in the article. If red reference "E" is less than red reference "F", then SLRC technically did not have enough annual net ICTI to pay out the company's dividend distributions for a particular year and must use a portion of the cumulative UTI balance to help with the overpayment.

TEST 2 - Analysis and Results:

Still using Table 2 above as a reference, SLRC had annual net ICTI of $73.8, $69.0, and $73.8 million for 2016, 2017, and 2018, respectively. In comparison, SLRC had annual dividend distributions of ($67.6), ($67.6). and ($69.3) million, respectively. When calculated, SLRC had an annual underpayment of net ICTI of $6.2, $1.4, and $4.5 million for 2016, 2017, and 2018, respectively (see red reference "(E - F) = G"). This calculates to an annual dividend distributions payout ratio of 92%, 98%, and 94%, respectively (see red reference "(F / E)"). As such, SLRC had a minor net ICTI underpayment during 2016 and 2018 while having a very minor underpayment during 2017. When combined, over the span of three years, SLRC had a dividend distributions payout ratio of 94% which I classify as a minor underpayment. As stated earlier, this includes the fact SLRC increased the company's quarterly dividend from $0.40 to $0.41 per share beginning in the first quarter of 2018. This should be seen as a positive catalyst/trend (still had a minor net ICTI underpayment even though the company slightly increased its quarterly dividend in 2018).

Moving to 2019, I am projecting SLRC will report annual net ICTI of $73.5 million. In comparison, I am projecting SLRC will have annual dividend distributions of ($69.3) million. When calculated, I am projecting SLRC will have an annual underpayment of net ICTI of $4.2 million for 2019. This calculates to an annual dividend distributions payout ratio of 94%.

Moving to 2020, I am projecting SLRC will report annual net ICTI of $71.3 million. This should be considered a cautious estimate. In comparison, I am projecting SLRC will have annual dividend distributions of ($69.3) million. When calculated, I am projecting SLRC will have an annual underpayment of net ICTI of $1.9 million (rounded) for 2020. This calculates to an annual dividend distributions payout ratio of 97%. Again, this projection would equate to a consistent, very minor-minor underpayment of net ICTI.

In my opinion, when looking at TEST 2 on a standalone basis, I believe readers should view SLRC's projected minor-very minor annual underpayment of net ICTI for 2019-2020 as an encouraging sign for a steady quarterly dividend per share rate during 2019-2020. Let us now take this dividend sustainability analysis a step further and perform TEST 3.

TEST 3 - Cumulative UTI Coverage of Outstanding Shares of Common Stock Ratio Analysis:

  • See Red References "I, K, (I / K)" in Table 2 Above Next to the December 31, 2020 Column

Once again using Table 2 above as a reference, I take SLRC's "cumulative UTI" figure (see red reference "I") and divide this amount by the company's "outstanding shares of common stock" figure (see red reference "K"). From this calculation, SLRC's "cumulative UTI coverage of outstanding shares of common stock ratio" is obtained (see red reference "(I / K)"). The higher this ratio is, the more positive the results regarding SLRC's future dividend sustainability. Simply put, this ratio shows the amount of cumulative UTI covering the number of outstanding shares of common stock for that specified point in time.

TEST 3 - Analysis and Results:

Still using Table 2 above as a reference, SLRC had a cumulative UTI balance of $7.3, $8.8, and $13.3 million at the end of the fourth quarter of 2016, 2017, and 2018, respectively. Due to SLRC's three-year underpayment of net ICTI (as discussed in TEST 2 earlier), the company's cumulative UTI balance increased from $1.1 million as of 12/31/2015 to $13.3 million as of 12/31/2018. SLRC had 42.2, 42.3, and 42.3 million outstanding shares of common stock, respectively. When calculated, SLRC had a cumulative UTI coverage of outstanding shares of common stock ratio of 0.17, 0.21, and 0.31 at the end of the fourth quarter of 2016, 2017, and 2018, respectively. Simply put, SLRC was able to gradually increase the company's cumulative UTI balance during 2016-2018 which should be seen as a positive catalyst/trend. This increase even occurred when SLRC increased the company's quarterly dividend from $0.40 to $0.41 per share beginning in the first quarter of 2018.

Moving to 2019, I am projecting SLRC will have a cumulative UTI balance of $17.4 million at the end of the fourth quarter of 2019. I am projecting SLRC will still have 42.3 million outstanding shares of common stock. When calculated, I am projecting SLRC will have a cumulative UTI coverage of outstanding shares of common stock ratio of 0.41 at the end of the fourth quarter of 2019. I consider this a modest cumulative UTI balance. Simply put, I believe SLRC's ratio as of 12/31/2019 will be at a fairly attractive level.

Moving to 2020, I am projecting SLRC will have a cumulative UTI balance of $19.4 million at the end of the fourth quarter of 2020. I am projecting SLRC will still have 42.3 million outstanding shares of common stock. When calculated, I am projecting SLRC will have a cumulative UTI coverage of outstanding shares of common stock ratio of 0.46 at the end of the fourth quarter of 2020. Simply put, I believe SLRC's ratio as of 12/31/2020 will remain at a fairly attractive level and continue the trend experienced over the past several years of a gradual, methodical increase in the company's cumulative UTI balance.

In my opinion, considering TEST 3 on a standalone basis, the evidence provided above helps support SLRC's steady-slight increasing quarterly dividend per share rate over the past several years and likely continued steady-slight increasing dividend through at least 2020. As will be discussed/shown in an upcoming BDC sector comparison article, as of 9/30/2019 SLRC had the fifth-highest cumulative UTI coverage of outstanding shares of common stock ratio out of the fifteen peers I currently cover.

Conclusions Drawn:

To sum up the information in this article, three dividend sustainability tests were performed on SLRC. The first test was based on SLRC's NII figures which are based on GAAP. The next two tests were based on SLRC's net ICTI figures which are based on IRC methodologies. TEST 1 provided the following information in regards to SLRC's annual NII for the prior three years:

SLRC's NII Payout Ratio for 2016, 2017, and 2018, Respectively: 95%, 99%, and 93%

TEST 1 also provided the following information in regards to my projection of SLRC's annual NII for 2019-2020:

SLRC's Projected NII Payout Ratio for 2019 and 2020, Respectively: 95% and 98%

In my opinion, considering TEST 1 on a standalone basis, this evidence supports the notion there could be some slight pressure for SLRC to slightly reduce the company's dividend per share rate heading into 2020 (since I am only projecting a very minor-minor underpayment of NII for 2019-2020). However, TEST 1 does not specifically account for SLRC's net ICTI figures/cumulative UTI balances (based on IRC methodologies). SOLELY looking at SLRC's NII as a dividend sustainability metric is a preliminary rush to judgement and has led, and will continue to lead, to inaccurate projections (pointing this out for other contributors and market participants). As such, to gain further clarity, TEST 2 was then performed which provided the following information in regards to SLRC's annual net ICTI for the prior three years:

SLRC's Net ICTI Payout Ratio for 2016, 2017, and 2018, Respectively: 92%, 98%, and 94%

TEST 2 also provided the following information in regards to my projection of SLRC's net ICTI for 2019-2020:

SLRC's Projected Net ICTI Payout Ratio for 2019 and 2020, Respectively: 94% and 97%

In my opinion, considering TEST 2 on a standalone basis, the evidence provided above helps support SLRC's steady-slightly increasing quarterly dividend per share rate over the past several years and likely continued steady-slightly increasing quarterly dividend per share rate through at least 2020.

Finally, TEST 3 provided the following information in regards to SLRC's cumulative UTI coverage of outstanding shares of common stock ratio at the end of the fourth quarter of the prior three years:

SLRC's Cumulative UTI Coverage of Outstanding Shares of Common Stock Ratio as of 12/31/2016, 12/31/2017, and 12/31/2018, Respectively: 0.17, 0.21, and 0.31

TEST 3 also provided the following information in regards to my projection of SLRC's cumulative UTI coverage of outstanding shares of common stock ratio for 2019-2020:

SLRC's Projected Cumulative UTI Coverage of Outstanding Shares of Common Stock Ratio as of 12/31/2019 and 12/31/2020, Respectively: 0.41 and 0.46

Simply put, SLRC was able to gradually increase the company's cumulative UTI during 2016-2018. Furthermore, as of 12/31/2020, I am projecting SLRC's ratio will be at its highest level since 2012. This even considers the fact SLRC increased the company's quarterly dividend from $0.40 to $0.41 per share beginning in the first quarter of 2018. In my opinion, considering TEST 3 on a standalone basis, the evidence provided above helps support SLRC's steady-slightly increasing quarterly dividend per share rate over the past several years and likely continued steady-slightly increasing quarterly dividend per share rate through at least 2020.

Therefore, when looking at the results from TEST 1, TEST 2, and TEST 3, I have concluded the probability of SLRC being able to maintain-slightly increase the company's quarterly dividend per share rate during 2020 is high (80%). As such, I am projecting SLRC will declare the following quarterly dividends for 2020:

Dividend for Q1 2020 (Paid in April 2020): $0.41-$0.42 per share

Dividend for Q2 2020 (Paid in July 2020): $0.41-$0.42 per share

Dividend for Q3 2020 (Paid in October 2020): $0.41-$0.42 per share

Dividend for Q4 2020 (Paid in January 2021): $0.41-$0.42 per share

My BUY, SELL, or HOLD Recommendation:

From the analysis provided above, including additional factors not discussed within this article, I currently rate SLRC as a SELL when the company's stock price is trading at or greater than a 12.5% premium to the mean of my projected SLRC NAV as of 12/31/2019 range ($22.00 per share), a HOLD when trading at greater than a 2.5% premium but less than a 12.5% premium to the mean of my projected SLRC NAV as of 12/31/2019 range, and a BUY when trading at or less than a 2.5% premium to the mean of my projected SLRC NAV as of 12/31/2019 range.

Therefore, I currently rate SLRC as a BUY. As such, I currently believe SLRC is undervalued from a stock price perspective. My current price target for SLRC is approximately $24.75 per share. This is a $0.15 per share increase when compared to my last SLRC article (approximately one year ago). This is currently the price where my recommendation would change to a SELL. When calculated, this would be price appreciation of approximately 20% from SLRC's closing stock price of $20.54 per share as of 12/6/2019. The current price where my recommendation would change to a HOLD is approximately $22.55 per share. This is also a $0.15 per share increase when compared to my last SLRC article.

For additional support on my BUY, SELL, or HOLD recommendation, I recently wrote the following sector comparison article which provided various metrics between fourteen BDC peers (including SLRC):

Ares Capital's NAV, Dividend, And Valuation Vs. 13 BDC Peers (Post Q3 2019 Earnings, Including Current Price Target)

Each investor's BUY, SELL, or HOLD decision is based on one's risk tolerance, time horizon, and dividend income goals. My personal recommendation will not fit each reader's current investing strategy. The factual information provided within this article is intended to help assist readers when it comes to investing strategies/decisions.

Recent/Current BDC Sector Stock Disclosures:

On 10/12/2018, I initiated a position in SLRC at a weighted average purchase price of $20.655 per share. On 12/18/2018, I increased my position in SLRC at a weighted average purchase price of $19.66 per share, respectively. When combined, my SLRC position has a weighted average purchase price of $19.909 per share. This weighted average per share price excludes all dividends received/reinvested. Each SLRC trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha.

On 9/6/2017, I re-entered a position in Prospect Capital Corp. (PSEC) at a weighted average purchase price of $6.765 per share. On 10/16/2017 and 11/6/2017, I increased my position in PSEC at a weighted average purchase price of $6.285 and $5.66 per share, respectively. When combined, my PSEC position has a weighted average purchase price of $6.077 per share. This weighted average per share price excludes all dividends received/reinvested. Each PSEC trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on PSEC.

On 6/5/2018, I initiated a position in TPG Specialty Lending Inc. (TSLX) at a weighted average purchase price of $18.502 per share. On 6/14/2018, I increased my position in TSLX at a weighted average purchase price of $17.855 per share. My second purchase was approximately double the monetary amount of my initial purchase. When combined, my TSLX position had a weighted average purchase price of $18.071 per share. This weighted average per share price excluded all dividends received/reinvested. On 11/12/2019, I sold my entire TSLX position at a weighted average sales price of $21.875 per share. This calculates to a weighted average realized gain and total return of 21.1% and 35.7%, respectively. I held this position for approximately 17 months. Each TSLX trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on TSLX.

On 10/12/2018, I initiated a position in Ares Capital Corp. (ARCC) at a weighted average purchase price of $16.40 per share. On 12/10/2018, 12/18/2018, and 12/21/2018, I increased my position in ARCC at a weighted average purchase price of $16.195, $15.305, and $14.924 per share, respectively. When combined, my ARCC position has a weighted average purchase price of $15.293 per share. This weighted average per share price excludes all dividends received/reinvested. Each ARCC trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on ARCC.

On 3/13/2019, I initiated a position in Gladstone Investment Corp. (GAIN) at a weighted average purchase price of $11.625 per share. On 6/6/2019, I increased my position in GAIN at a weighted average purchase price of $11.085 per share. When combined, my GAIN position had a weighted average purchase price of $11.257 per share. This weighted average per share price excluded all dividends received/reinvested. On 11/11/2019, I sold my entire GAIN position at a weighted average sales price of $13.78 per share. This calculates to a weighted average realized gain and total return of 22.4% and 28.3%, respectively. I held this position for approximately 7 months. Each GAIN trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha. I currently have a SELL recommendation on GAIN.

On 10/2/2019, I re-entered a position in NEWTEK Business Services Corp. (NEWT) at a weighted average purchase price of $21.635 per share. On 10/7/2019, I increased my position in NEWT at a weighted average purchase price of $20.95 per share. When combined, my NEWT position has a weighted average purchase price of $21.121 per share. This weighted average per share price excludes all dividends received/reinvested. Each NEWT trade was disclosed to readers in real-time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on NEWT.

Final Note: All trades/investments I have performed over the past several years have been disclosed to readers in real-time (that day at the latest) via the StockTalks feature of Seeking Alpha (which cannot be changed/altered). Through this resource, readers can look up all my prior disclosures (buys/sells) regarding all companies I cover here at Seeking Alpha (see my profile page for a list of all stocks covered). Through StockTalks disclosures, at the end of November 2019, I had an unrealized/realized gain "success rate" of 96.6% and a total return (includes dividends received) success rate of 97.9% out of 47 total past and present positions (updated monthly; multiple purchases/sales in one stock count as one overall position until fully closed out). I have yet to realize a "total loss" in any of my past positions. Both percentages experienced a minor increase in October and November due to the continued reversal of the previous sell-off within the mortgage real estate investment trust (mREIT) sector; mainly due to a partial easing of fears of narrowing net spreads and higher prepayments. I encourage other Seeking Alpha contributors to provide real-time buy and sell updates for their readers which would ultimately lead to greater transparency/credibility.

I am currently "teaming up" with Colorado Wealth Management to provide intra-quarter CURRENT BV per share projections on all 21 mREIT stocks I currently cover. These very informative (and "premium") projections are provided through Colorado's S.A. Marketplace service. I also provide "rapid-fire" mREIT quarterly earnings articles. In late October 2019, I have expanded my services via additional data/analytics, continuous sector recommendations (including ranges), and exclusive mREIT articles. In late November 2019, I have expanded my services to include BDC data/analytics, continuous sector recommendations (including ranges), and exclusive articles.

This article was written by

Scott Kennedy profile picture
20.51K Followers
Author of The REIT Forum
The #1 REIT Service For Those Targeting Strong Total Returns
Note: I am currently "teaming up" with Colorado Wealth Management to provide weekly CURRENT BV and NAV per share projections on all 20 mREIT and 15 BDC stocks I currently cover. These very informative (and “premium”) projections are provided through Colorado's S.A. Marketplace service, The REIT Forum. In addition, this includes additional data/analytics, continuous sector recommendations (including ranges), and exclusive mREIT and BDC "rapid fire" chat notes immediately after earnings (followed by subsequent earnings assessment articles).


Below are the stocks I currently cover (as of Summer 2022):


Stocks Covered (20 mREITs; 15 BDCs): AGNC, AINV, AAIC, ARCC, ARR, BXMT, CHMI, CIM, CMO, DX, EFC, FSK (formerly FSIC), GAIN, GBDC, GPMT, IVR, MAIN, MFA, MITT, NEWT, NLY, NRZ, NYMT, OCSL (formerly FSC), ORC, ORCC, PFLT, PMT, PSEC, SLRC, TCPC, TSLX, TWO, TPVG (NEW), and WMC.

I cannot cover ABR or STWD in the mREIT sector due to indirect conflicts of interest.

Note: So, readers have continued to reach out and ask what I provide within Colorado Wealth Management’s Marketplace Service, the REIT Forum. I provide the following benefits vs. what I provide to the public:

1) Quarterly earning assessments of all 35 mREIT + BDC peers I cover. This includes rapid-fire "chat notes" the same day of earnings for each covered stock; followed by a detailed assessment article.

2) Subscribers can ask questions / engage in discussions with me daily via the REIT Forum chat feature (each weeknight and during the day on weekends). I answer all questions on the two sectors I cover. The REIT Forum’s chat feature takes precedence over my public responses and personal messages from non-subscribers.

3) Each week, I provide a “weekly recommendation” article (with tables for illustrative purposes) so readers can quickly find out which mREIT and BDC stocks have moved “in and out” of my BUY, SELL, or HOLD recommendation range. I believe this is highly valuable information that can lead to enhanced total returns or minimize an investor’s total losses.

4) For my mREIT articles, subscribers get “early looks” for all public articles I provide. This typically ranges from 2-3 days prior to public publication. For investors looking to “jump on” some of my ideas, prior to the general public being aware of such ideas, this is valuable.

5) Within the REIT Forum mREIT articles, subscribers are provided with one, or a combination of, the following benefits: a) additional tables; b) additional topics; and/or c) sector recommendation tables which are updated weekly using my CURRENT projected BVs for all 20 sector peers I cover. This includes access to sector “risk ratings”.

6) For my BDC articles, subscribers get “early looks” at all public articles I provide. This typically ranges from 2-3 days prior to public publication. For investors looking to “jump on” my ideas, prior to the general public being aware of such ideas, this is also valuable.

7) Within the REIT Forum BDC articles, subscribers are provided with one, or a combination of, the following benefits: a) additional tables; b) additional topics; and/or c) sector recommendation tables which are updated weekly using my CURRENT projected NAVs for all 15 sector peers I cover. This includes access to sector “risk ratings”.

8) In the future, I will be providing, for each BDC I cover, specific investment portfolio risk ratings, grouped on a scale of 1-5. This includes risk ratings on over 1000+ underlying portfolio companies. In addition, I will be providing monthly credit upgrades / downgrades on specific underlying portfolio companies. By having access to this valuable information, subscribers are provided “an edge” when it comes to assessing future BDC performance (which directly impacts stock price valuations).

9) I provide “real-time” chat messages regarding all purchase and sale decisions I make within my personal portfolio for the two sectors I cover. Over the past several years, I have provided such disclosures, for free, via the StockTalks feature of S.A. (for transparency and credibility). However, since this provides additional value for subscribers, I “transitioned” these real-time disclosures to subscribers of the REIT Forum. I will continue to disclose publicly all stock purchase and sale decisions. However, they will only be within each applicable sector article which won’t be in real-time (could be a few days later or could be a few weeks until readers see what moves I made outside the REIT Forum).

I hope this provides some additional clarity on what I specifically provide to Colorado’s the REIT Forum Marketplace service.

Summer 2017 PRO Promotion Recipient

StockTalk Unrealized/Realized Gain "Success Rate" as of 5/31/2022 (62 Past and Present mREIT + BDC Positions): 90.3%

StockTalk Total Return "Success Rate" as of 5/31/2022: 93.5%

I am a Certified Public Accountant (CPA) and Certified in Financial Forensics (CFF). I have also been a member of the American Institute of Certified Public Accountants (AICPA) for 24 years. My current title is partner at a national accounting firm. I have audit, tax, and consulting experience with entities in the following sectors: closed-end funds, energy, financials, healthcare, homebuilders, pharmaceuticals, private equity, REITs, and telecoms. I also have experience with C-corps., estates, high net worth individuals, LLCs, LLPs, S-corps., and trusts. I am an active investor. My investing fundamentals are based on both qualitative and quantitative information. By using my financial / analytical skills, I create specific investing ideas / strategies based on valuations and total returns. The two main sectors I currently provide articles on are mortgage real estate investment trusts (mREITs) and business development companies (BDCs).

Disclaimer: I cannot own and will not give an opinion on any investments my current employer has any direct or indirect professional services with (accounting, audit, tax, consulting, etc.). As such, most large-cap stocks are "off the table" regarding my articles. All accounting insight, analysis, and opinions stated within any articles I write (in regards to a specified stock) are entirely from my own personal research and analysis. I believe my articles are both informative and in some cases educational.

Note: A growing number of readers/investors, analysts, and representatives of firms have requested to be provided with my "spreadsheets/models" to help better understand certain companies/sectors. My researched data is several files of 350+ spreadsheets/models containing both stocks I write about on S.A. and stocks I choose to not write about on S.A. To reduce the repeated requests to provide such data, these spreadsheets/models are ALL linked together. As such, all current and future requests to "share" my data/models will be politely declined. Thanks for your understanding regarding this matter.

I appreciate my loyal readers and I’ll continue to try to provide high quality, in-depth articles.

Commonly Asked Questions:

Question 1): If you are only paid per article, why make your articles so long / detailed?

- I like to provide the “nuts and bolts” of a company. As such, I strive for my articles to have some sort of “hard to obtain” facts / figures. From this data, I like to fully discuss / analyze specific topics within a particular stock. This mainly consists of a quarterly projection article and a series of articles on a company’s dividend sustainability. In certain instances, I also write articles in regards to specific, material events that occur during a quarter.

- I believe a company’s quarterly results and upcoming dividend declarations are two of the most important topics readers are requesting information on. My analysis takes the “average” article several steps further to allow readers to have access to information that is rare to public viewership.

Question 2): How come you only write 1-2 articles a week (would like to see more)?

- As stated in my profile above, I have a full-time professional career. I write / analyze stocks in my free time. To provide these types of high quality / in-depth articles, I can’t see writing more than 2 articles a week. I believe “quality” should always be a higher priority versus “quantity”.

- As many readers should know by now (if you’ve followed me for a while), I'm not here for the monetary rewards. If that was the case, I’d write 5+ weekly articles and provide little to no engagement in each article’s comment section. I believe the comments section is as important as the article themselves b/c readers have a wide range of questions in relation to each article or the sector in general.

Question 3): What do you personally gain from writing these articles?

- I am not here trying to promote a company, book, or website. There’s nothing wrong with that. That’s just not what I’m about. I’m here for the “average Joe”.

- When I decided to write these articles, I based it on the notion I am filling a “special niche” per se. Using skills that have been built up over my professional career, my articles usually provide unique information that most writers either a) don’t have the technical expertise to provide or b) don’t bother providing due to the time it takes to compile such data. As such, I believe the S.A. community benefits from my articles. I solely do this b/c it’s a passion of mine and I like helping readers have accurate, reliable data that is not readily available. Yes, I understand this may seem “hard to believe” in this day and age.

Question 4): How come you do not write about more stocks?

- To give readers the level of detail that I provide in my articles, I amass large amounts of data every quarter (or even weekly). As a direct result, a large amount of time is consumed by obtaining / analyzing this data.

- If I expanded the stocks I research, it would most likely take away the quality of other articles I currently am writing about. Again, this gets back to the “quality vs. quantity” metric.

- There is a fairly large range of stocks / investment vehicles I cannot write about / provide an opinion on due to various conflicts of interests (regarding my professional career). This is a topic I take VERY seriously.
Follow

Disclosure: I am/we are long SLRC, ARCC, GAINM, NEWT, PSEC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I currently have no position in BDCL, BDCS, BIZD, GAIN, or TSLX.

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.