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Capital Southwest: 11% Yield, Rising Rates Boosting Earnings, 3rd Straight Dividend Hike

Feb. 03, 2023 9:15 AM ETCapital Southwest (CSWC)36 Comments


  • CSWC yields 11.6% - Management made its 3rd straight quarterly dividend hike this week.
  • CSWC just reported big growth for quarter ending 12/31/22 - NII rose 63%.
  • Rising rates continue to boost CSWC's earnings.
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This article was written by

Double Dividend Stocks profile picture

Robert Hauver, MBA, aka “Double Dividend Stocks” was VP of Finance for an industry-leading corporation for 18 years and has been investing for more than 30 years. He focuses on undercovered and undervalued income vehicles and he leads the investing group Hidden Dividend Stocks Plus.

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of CSWC either through stock ownership, options, or other derivatives. 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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Comments (36)

Big Red Income Farmer profile picture
What BDC has highest % of first liens, floating rates vs fixed, lowest % of non-accruals?
Veritas1010 profile picture
Thank you DD for your presentation.

$CSWC is within those top tier BDC’s for all the reasons your numbers articulate.

I got in last year (along with all my other BDC’s, last year also), and am satisfied by their diversification, investment strategies, and then the resultant shareholder distributions that is concurrent with good management.

At these present prices it is a hold for me as I do not see the immediate distributions driver with lower interest rate increases forthcoming. However, this BDC does have room for total returns growth this year and I am of the school already expressed within the comments that this should be coming via the special distributions route.

All that is fine by me. Another solid brick in the wall of a high yield investments portfolio.

disc.: long $CSWC.
BartAtTheRanch profile picture

Agree with all you said. Curious, but I have a BDC analyst friend who puts CSWC in second place in expected total return over the next few years. As you said, all that is fine by me.


also long CSWC
@BartAtTheRanch Who does your BDC analyst friend put in first place for expected total return over the next few years?
BartAtTheRanch profile picture

Believe it or not, it is FSK (perhaps because it was so beaten down?)

Hipsterkitty profile picture
Thank you for the excellent data and commentary. I first started buying CSWC in 2019. Adding a few hundred shares per year. My overall investment is down 10%, but I have no doubt about its recovery.
Some history. Major bottom buys: 11/90, 12/94, 3//2000, 3/03, 3/08, 7/09, 10/2011, 6/2016, 3/2020 and 12/2022. Short term over bought now, could be a buck or two Lower (on a weekly chart range between $18.55 and $20.32). If you think it's for you take half a position now and look to fill the other half in a month or two. Don't fight the fed, rate increases possible in March and May ( next two fed meetings). And how can you complain about a locking in a 10% yield? Use various time periods daily, weekly and monthly, Daily actions occur faster, monthly slower on moving average charts, so dates on timing may be off. I do have a position in my dividend portfolio (this is my disclaimer).
Thanks for the article.
Steve Rasher profile picture
@Double Dividend Stocks Thanks for the update on $CSWC. Management is executing well. With rising rates and no debt due until 2026, they should continue to out earn the dividend. However, if we are going to see rates peak sometime this year, I would expect limited increases in the base dividend and greater reliance on supplemental or special dividends to reduce spillover income. Not a bad strategy as if/when rates decrease the yield on the portfolio will likewise decrease. JMHO. Steve
@Steve Rasher I prefer a steady and consistent and reliable dividend with supplemental or special dividends "as a ticker" - if and when the company feels that they can issue them, rather than a company policy of endeavoring to increase the base dividend - come "hell or high water," and then, the possibility that the "base dividend" has to eventually be reduced.
Steve Rasher profile picture
@koleffstephan I think you and I are on the same page. Maybe I didn't make myself clear. I only see very limited increases in the regualar dividend, which may stop eventually as interest rates fall. In the meantime, I do expect a continuation of some form of special dividends in order to minimize the accumulation of spillover. Steve
@Steve Rasher With your additional message post (this most recent message post) - I now understand you loud and clear. "My bad" - as my kids say, when they have made a mistake. I misinterpreted your previous message post. I now understand your previous message post.
Best of luck to you.
at it’s target price of $20 … and a recession potentially coming…for me it’s a hold, not a buy at this time
Well written article. Long CSWC.
As shown in the charts, 12 mo performance has been a dog at -17.83%. the dividend does not make up any where near for the loss in principal and the return is only average for the sector (& a hefty premium to nav as well). In the sector OCSL, TRIN, SAR have performed much better TTM. I'm holding for now.
Td0815 profile picture
@mrpriceisright so if fundamentals develop great and a stock underperformed their peers in terms of stock price significantly over the TTM - isn’t this a positive sign to invest in it right now?

Zoom out for 5 years. CSWC was at a similar premium to book than right now and outperformed your mentioned peers from then on. Just my two cents…
500MPH profile picture
You make the best point anyone could make for buying CSWC here.
@Td0815 price was at $20 5 years ago and is now … no reason to buy now… but hold for the dividend and then add on dips
BartAtTheRanch profile picture
Thanks for the article. Can you tell me their percentage of PIK income (I think I heard some mention of it on the call).

I am long both CSWC and MAIN.
Mini MAIN (aka CSWC) is doing good and expect them to have a good year.
elliot_mllr profile picture
In pricing CSWC I would assume that its supplemental dividend is as firm in prospect as its base dividend, so I would assume a dividend rate of $0.58 rather than the more conservative $0.53 plus $0.05. That may be somewhat aggressive but I do believe that it is realistic.
Elliot Miller
tampabob profile picture
Am I missing something? Yahoo Finance says their dividend looks like this:
Dec 14, 2022 0.57 Dividend
Sep 14, 2022 0.5 Dividend
Jun 14, 2022 0.63 Dividend
Mar 14, 2022 0.48 Dividend
Dec 14, 2021 0.97 Dividend
Sep 14, 2021 0.54 Dividend
Jun 14, 2021 0.53 Dividend
@tampabob Wouldn't use Yahoo for dividend info but I will comment that their dividend info appears to contain regular, supplemental and any special dividends mixed together and why you are seeing it jump around.
tampabob profile picture
@Dividend Trapper Thanks for the info.
Outstanding article!!!! I liked the detail and info on Tax Treatment, P/NII, Floating rate percentage and etc which saved me time on research.
Great BDC!!! Picking up shares on every dip. Great type issue to have in your IRA/Roth. Approaching 2k shares. Target 3k by end eoy.
Double Dividend Stocks profile picture
@absolute truth
Thanks for commenting.
The Dividend Collectuh profile picture
One of my favorite holdings in my
Portfolio. Bought a little high but the dividend is lovely 😊
Double Dividend Stocks profile picture
Thanks for reading and commenting.
petergo007 profile picture
great investment for NRA's as they classify distributions as INTEREST type income

thnks for the article

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