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Gladstone Investment Term Preferred Shares: 7.5% Yield-To-Redemption And Great Safety


  • Gladstone Investment Corporation has two term-preferred stocks with mandatory redemptions in 2023 and 2025.
  • GAIN has the best BDC balance sheet in the BDC universe, having no debt whatsoever and extremely low leverage when the preferred stocks are included.
  • GAIN management has proven itself to be exceptional.
  • Our first choice is the GAIN series E term preferred which sells well below par with a safe 7.5% yield to redemption.
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Co-produced with Preferred Stock Trader

Gladstone Investment - Excellent Management

Gladstone Investment (NASDAQ:GAIN) is a business development company which primarily makes loans to lower middle market companies. It also has some investments in the preferred stock of these companies. GAIN does have some common equity and warrant positions, but these amount to less than 5% of the company's assets. The company considers itself a "private equity" company.

GAIN is externally managed by Gladstone Management Corporation which has an amazing track record. While many BDCs have had ever-decreasing net asset values (NAVs) over the years, GAIN not only pays out a handsome dividend but owners of GAIN also have been the beneficiary of a stock price that has moved much higher over the years. In fact, over the last 10 years, GAIN's price increase has been higher than the beloved blue chip BDC, MAIN. Here's the 10-year price chart of GAIN.

GAIN 10 Year Price Chart

Source: Etrade

Before the COVID-19 induced bear market, GAIN had seen its stock price triple over the last 10 years, providing investors with a very hefty total return. Even after the large recent sell-off, GAIN has still seen its stock more than double from $5.00 to $10.87 as of the close on April 29. This kind of stock price growth is very impressive for a BDC or for any company that pays out a very high dividend on its common stock.

GAIN Term Preferred Stocks

Term preferred stocks, unlike your typical perpetual preferred stock, actually have a mandatory redemption date, making them somewhat similar to bonds. If GAIN does not redeem their term preferred stock by the redemption date, the dividend will rise by 3%. Readers may have seen this type of "failure to redeem" clause in other preferred stocks, although they are relatively rare. But

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This article was written by

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Analyst’s Disclosure: I am/we are long GAINL. 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.

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