Solar Capital: Solid 9.5% Dividend Yield

Wall Street analysts have a very bullish rating for the stock and a price … Dividend on these equity securities decreased by 30% in Q2, compared to …

Investment Thesis

Solar Capital (SLRC) showed resilience during the pandemic. The company’s portfolio had ZERO non-performing loans in FQ2.

The quality of SLRC’s portfolio will enable the company to maintain its dividend distributions, which currently yield an eye-watering 9.5%.

SLRC is trading at a 19% discount on NAV, opening an opportunity for 17% capital appreciation, augmenting the 9.5% annual dividend yield.

Portfolio Quality

SLRC portfolio performed well during the pandemic. The company had ZERO non-performing loans as of June 30th, 2020. This is a result of a careful approach to investing that won Wall Street admiration. Wall Street analysts have a very bullish rating for the stock and a price target of $18.22 per share.

SLRC’s $1.4 billion investment portfolio is composed of 108 companies in 27 different industries, providing valued diversification. Almost all of SLRC’s debt investments are senior secured loans, enhancing portfolio quality.

Moody’s rating maintained its investment grade rating for the company during lockdown, which is a testimony on management prowess and portfolio quality.

Dividend Sustainability

SLRC has an uninterrupted record of dividend hikes since 2014. SLRC’s management stated last month that it plans to maintain its dividend payments at current levels. The outstanding investment portfolio will enable the company to achieve its dividend distribution plans.

Having said that, temporary disruptions in earnings pushed SLRC’s payout ratio above 100%, driving some investors to question the sustainability of future distributions. Below is an analysis of these factors to assess the risks related to dividend continuity.

Reasons for lower revenue in Q2

  1. Smaller investment portfolio
  2. Lower interest rates on debt securities
  3. Lower dividend yields on equity securities

Smaller Investment Portfolio: SLRC’s portfolio shrank $105 million at cost ($135 million at fair value) in the six months ending June 30th, 2020. This was a result debt pre-payments on behalf of some portfolio companies looking to refinance their debt. SLRC is gradually restoring its investment portfolio by new investment originations. In the three months ending June 2020, SLRC invested $61 million in 14 new portfolio companies. With almost half a billion in cash, the company will have no problem replacing investments it lost recently.

Source: SLRC financial statements

Lower interest rates on debt securities: 77% of SLRC’s debt investments are tied to LIBOR. In response to the COVID pandemic, the Fed ventured on a wide scale monetary stimulus that lowered interest rates. Last week, the Fed chairman signaled that interest rates will remain close to the zero bound until 2023.

While these developments are recent, the low interest rate environment is yesterday’s news. Historically, the effect of low Fed rates on the US middle market rates has been soft. SLRC’s weighted average yield in Q2 was 9.9%, compared to 10.6% in Q1.

Moreover, many of SLRC debt securities have interest floors, thus minimizing the impact of lower LIBOR.

Lower yields on equity investments: SLRC holds 23% of its investments in the form of equity securities. Dividend on these equity securities decreased by 30% in Q2, compared to the same quarter last year.

As economic activity returns to normal, SLRC’s portfolio companies will bring their dividend distribution up closer to their pre-pandemic levels.

Insider Ownership

Currently, SLRC insiders own 7% of the shares outstanding. The management team increased buying at the start of the market rout in March. This demonstrates the management’s confidence in the company.

Discount on NAV

Reported NAV as of June 30th, 2020 is $20.11 per share. The stock is trading at a 19% discount of NAV ( price $16.37). Below is the historical NAV-Price gap. If NAV-GAP returns to normal levels of 4.5%, then the price will be 19.2, opening an opportunity for 17% capital appreciation.

Source: Author’s estimates. Data from SLRC financial statements

Risks

SLRC has about half a billion in cash. While this cash will help the company grow its portfolio, the company faces competition from other lenders in the US middle market. This might make it difficult for the company to deploy its capital in investments that meet the management’s criteria.

Moreover, SLRC’s investments are non-investment grade and carry a significant amount of risks. The company implements covenants, collateral, and stringent due diligence in choosing its investments to minimize these risks. Still, the risks inherent in the company’s operations can’t be ignored.

Summary

Temporary disruptions in earnings are spooking investors, pushing SLRC below its average NAV/Price, and opening an opportunity for long-term investors to lock in a 9.5% dividend yield with 17% capital gain potential.

Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.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: This is not investment advice. Please consult an investment advisor before trading in the stock market.

Troy wins battle for Securities Trust

The global equity income trusts yield between 2.7% and 5.5%. There is a debate about the best way to manage these portfolios – do you buy stocks that …

The big news of the week in the investment companies sector is probably Troy Asset Management securing the management contract for Securities Trust of Scotland from Martin Currie.

Securities Trust is a £200m global equity income fund. Troy already has a UK equity income trust and Personal Assets, a global absolute return trust, both of which are popular with investors and expanding. They’ll be hoping that they can pull off the same feat with Securities Trust.

Under its previous manager, Mark Whitehead, Securities Trust had seen some improvement in its performance both relative to its benchmark and its peer group. When Mark announced that he was planning to leave Martin Currie, the Securities Trust board felt it needed to review the trust’s future.

The global equity income sector doesn’t have that many constituents. The largest, by some way, is Murray International – which I wrote about last week in a Citywire article – there’s a link to that here. Baillie Gifford’s fund in this sector is Scottish American, JPMorgan has JPMorgan Global Growth and Income and Janus Henderson has Henderson International Income. The only other trust in the sector is the global equity income portfolio of Invesco Perpetual Select Trust, which is just £50m.

The yield on the MSCI World Index was 1.9% at the end of August. The global equity income trusts yield between 2.7% and 5.5%. There is a debate about the best way to manage these portfolios – do you buy stocks that trade on above average yields and pay dividends that are covered by revenue or do you invest in faster-growing but lower-yielding companies and top up your revenue by distributing capital profits? The JPMorgan fund falls into this latter category. Scottish American just operates with the sector’s lowest yield.

The new manager of Securities Trust will be James Harries. James manages the Troy Global Income Fund, a £388m open-ended fund that was launched for him on 1 November 2016.

Between that launch date and the end of August 2020, the open-ended fund returned 30.8%. This represents underperformance versus the MSCI World Index by 12.2 percentage points over that period. However, this has been a period where income-style mandates have struggled relative to growth funds. The Troy Global Income Fund is 11.1 percentage points ahead of its IA Global Equity Income peer group, since launch. More interesting perhaps, the open-ended fund’s returns are 6.4% ahead of those of Securities Trust over the three years ending 31 August 2020.

The open-ended fund makes a point of not investing in cyclical and highly capital-intensive businesses. The style emphasises free cash flow generation (helpful when it comes to paying dividends). That stance has served the fund well. It did not own any oil companies ahead of the oil price crash earlier this year. It also had relatively high exposure to consumer staples companies, whose defensive characteristics have been sought after in recent times.

James takes a long-term, high conviction approach and evidence of that is that no new holdings were added to the portfolio over the whole of 2019 and only one stock was sold in its entirety.

When Troy gets hold of Securities Trust’s portfolio, expect to see some major changes. None of the top 10 holdings in the trust features in the top 10 positions of the open-ended fund. To be honest though, to me the Troy fund looks more like an old-fashioned income fund – with big positions in tobacco, pharmaceuticals, PepsiCo, Unilever and Reckitt Benckiser – while Securities Trust holds Microsoft, Taiwan Semiconductor, Samsung and Tencent.

Securities Trust paid 6.41p in dividends for the year ended 31 March 2020, which puts it on a historic yield of about 3.3%. The announcement says that “future dividend payments will reflect the revenue earned by the portfolio and as a result the dividend payment for the year to 31 March 2021 will be reset to a more sustainable level of at least 5.5p”, equivalent to a yield of about 2.8%. That seems a bit meagre to me but it still just ahead of Scottish American and a decent premium to the MSCI World Index.

Troy seems to have big ambitions to grow the trust if its charging structure is anything to go by – fees are in a tiered structure with lower fees kicking in at £750m and £1bn. It will be interesting to watch its progress over the next couple of years as all of these funds negotiate the fallout from COVID and the extraordinary measures that central banks and governments are taking to shore up economies. An ‘old-fashioned’ defensive portfolio might be a good place to be.

3 Big Dividend Stocks Yielding Over 8%; JMP Says ‘Buy’

The first stock on our list is a financial company. BlackRock TCP Capital is a specialty finance company with a clear focus on mid-market lending.

PennyMac Mortgage(PMT)

Next up is another financial stock, PennyMac Mortgage. This company is a mortgage investment trust, a sub-niche of the real estate investment trust industry that provides somewhat more liquidity by investing primarily in mortgage backed securities rather than directly in real properties.

During the corona crisis of 1H20, PMT saw earnings turn negative in Q1 and return to positive territory in Q2. The numbers were -$5.99 EPS in the first quarter, and $4.51 in the second. Revenues followed a similar pattern, with the Q2 top line hitting $475 million.

The company adjusted its mortgage payments in the first half to account for the earnings volatility. PMT paid out 25 cents per common share in Q1, just slightly more than half of the long-held dividend of 47 cents. In Q2, management started raising the dividend, and paid out 40 cents per common share, which gives a yield 9.1%.

Trevor Cranston wrote the review of this stock for JMP, and sees the company with a path forward as the pandemic effects wane.

“[Our] outlook on MSRs has improved somewhat in the past few months as the expected negative COVID-19-related impact has subsided, and we continue to believe strength in the correspondent lending business is likely to more than offset any weakness in MSR results due to strong tailwinds for origination volumes, even as conventional margins have returned to more normalized levels,” Cranston opined. “As a result, believe PMT shares should trade at a premium to the hybrid REIT peer group as many peers sold significant volumes of credit assets in late 1Q and early 2Q, resulting in less book value recovery potential.”

Along with these comments, he gives the stock a $19 price target, implying room for 9% upside growth. Cranston’s rating on the stock is Outperform, (i.e. Buy). (To watch Cranston’s track record, click here)

Overall, PMT holds a Moderate Buy analyst consensus rating based on 5 recent Buys and 2 Holds. The stock has an average price target of $19.40, slightly higher than Cranston’s, and indicative of a 11% upside potential. (See PMT stock analysis on TipRanks)

Oaktree Specialty Lending (OCSL)

Last up on this list, Oaktree, is another specialty finance company. Oaktree provides loans and credit access for small- to mid-size companies that cannot gain entry to traditional sources of capital. Oaktree’s portfolio is modestly diverse, with $1.4 billion invested in 128 companies. Most of this is first lien debt, 62%, while some 20% is made up of second lien.

Oaktree reported last month on its FYQ3 results, and the results were solid. EPS came in at 12 cents, against a forecast of 11 cents, for a 9% beat. Revenue for the fiscal third quarter was $34.4 million, even with forecast and down slightly yoy.

The earnings results suggest that the company is emerging from the corona crises intact, a thesis supported by management’s decision to raise the quarterly dividend. They have not raised the payout since mid-2018, when it was set at 10 cents per common share. The new dividend payment is 10% higher, at 11 cents, but while the numbers seem small, the yield is an impressive 8.5%.

Turning back to Christopher York, we find that the JPM analyst has set a $6 price target on OCSL, suggesting his belief in a 24% potential for the stock.

Backing his stance, York writes, “We think the combination of stability in portfolio performance in 2Q20, along with growth in the investment portfolio at wider spreads gave the board the necessary boost to finally increase the dividend with improved visibility in recurring core earnings. Going forward, we believe there are a couple levers available for OCSL to expand earnings and ROE, so we think another dividend increase in F2021 is possible.”

Of the three stocks on this list, Oaktree is the one with a Strong Buy analyst consensus rating – and it is unanimous. The stock has received 5 Buy reviews in recent weeks. The shares are priced at $4.83, and the $5.60 average price target implies an upside potential of 16% for the coming 12 months. (See OCSL stock analysis on TipRanks)

To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

4 Top Cybersecurity Stocks to PROTECT Your Portfolio

4 Top Cybersecurity Stocks to PROTECT Your Portfolio. : crwd | CrowdStrike Holdings, Inc. – News, Ratings, and Charts.

Business owners and managers have never been more concerned with cybersecurity. Fewer people are working in offices, more people are working from home, and the number of cyber attacks continues to increase with each passing day. Home networks are particularly vulnerable as they lack the fortifications of business networks, making cyber-security safeguards more critical.

Though the increasingly dangerous cyber landscape is undoubtedly a negative for those reliant upon the internet to conduct business and make a living, this phenomenon is sure to benefit the following stocks: Crowdstrike (CRWD), Check Point Software Technologies (CHKP), Cloudflare (NET) and Proofpoint (PFPT).

Crowdstrike (CRWD)

It is hard to believe technology has reached the point where artificial intelligence (AI) facilitates the protection of internet endpoints against online attacks. CRWD’s brass is mainly responsible for this progression. Headquartered in Sunnyvale, California, CRWD is one of the world’s leading cloud-delivered cyber-security providers.

Take a look at CRWD’s POWR Ratings, and you won’t find any weaknesses. CRWD has above average grades in all POWR Components. Top analysts have set a price target of $115.10 for CRWD, which is more than 10% above its current price. The society-wide shift to the internet has helped this stock rebound from its coronavirus outbreak low of around $30, ascending beyond the $100 mark.

Look for CRWD to return to its 52-week high of $118 and change as the pandemic continues, and more businesses shift their operations to the web, making CRWD’s services that much more valuable.

Check Point Software Technologies (CHKP)

Information stored and transferred online is in the crosshairs of cyber miscreants located across the globe and here at home. CHKP works to thwart malicious web attacks, providing IT security, including network security and data security.

The POWR Ratings reveal CHKP has an A Trade Grade and B grades in the remaining three POWR Components. CHKP is ranked in the top 10 of more than 20 Software – Security stocks. Top analysts have set a price target of $126.06 for CHKP.

CHKP has a forward P/E ratio of 18.34, meaning it has solid value at its current trading price of $120. CHKP could easily surpass its 52-week high of $130.65 in the months to come.

Cloudflare (NET)

Load up your favorite websites, and you might catch the NET logo and name before the homepage appears. NET, based in Austin, TX, prevents DDoS attacks and other internet attacks for more and more customers with each passing day. NET’s services also speed up web applications without adding any hardware, altering code lines, or installing software. More than 27 million internet properties rely on NET for cyber-security protection.

The POWR Ratings show NET has an A Trade Grade and B grades for Buy & Hold and Industry Rank. NET is ranked in the top half of all Software – Security stocks.

Top analysts are bullish on NET, setting a $39.33 price target. In all, 10 analysts recommend investors buy the stock, two recommend holding it, and none recommend selling.

Proofpoint (PFPT)

Large and medium-sized businesses are the most coveted clients for obvious reasons. These big boys have plenty of money to spend and are likely to remain in business for years or decades. PFPT tailors its data protection services to these comparably large businesses. PFPT’s solutions safeguard data against attacks, ensuring full compliance with ever-evolving regulatory compliance standards.

The POWR Ratings reveal PFPT has an A Trade Grade, and a B Buy & Hold Grade. Check out PFPT’s analyst forecasts, and you will find bullish support: nine analysts recommend buying the stock, three recommend holding it, and zero recommend selling.

The average analyst price target for PFPT is $144.91. Look for PFPT to trend toward its 52-week high of $133.58 in the weeks and months ahead.

Want More Great Investing Ideas?

9 “BUY THE DIP” Growth Stocks for 2020

Newly REVISED 2020 Stock Market Outlook

7 “Safe-Haven” Dividend Stocks for Turbulent Times


CRWD shares rose $0.06 (+0.05%) in after-hours trading Wednesday. Year-to-date, CRWD has gained 126.43%, versus a 2.05% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More…

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
CRWDGet RatingGet RatingGet Rating
CHKPGet RatingGet RatingGet Rating
NETGet RatingGet RatingGet Rating
PFPTGet RatingGet RatingGet Rating

Short term estimates and forecasts for Aflac Incorporated (AFL)

The top two institutional holders are Vanguard Group, Inc. (The) with over 66.66 Million shares worth more than $2.28 Billion. As of March 30, 2020, …

Aflac Incorporated (NYSE:AFL) has a beta value of 0.88 and has seen 1,353,376 shares traded in the recent trading session. The company, currently valued at $25.72 Billion, closed the recent trade at $35.74 per share which meant it lost -$0.55 on the day or -1.5% during that session. The AFL stock price is -54.09% off its 52-week high price of $55.07 and 35.45% above the 52-week low of $23.07. If we look at the company’s 10-day average daily trading volume, we find that it stood at 2.75 Million shares traded. The 3-month trading volume is 3.92 Million shares.

Despite being -1.5% in the red today, the stock has traded in the green over the last five days, with the highest price hit on Friday, Jul 24 when the AFL stock price touched $37.34- or saw a rise of 4.23%. Year-to-date, Aflac Incorporated shares have moved -32.4%, while the 5-day performance has seen it change -2.45%. Over the past 30 days, the shares of Aflac Incorporated (NYSE:AFL) have changed 0.93%. Short interest in the company has seen 8.28 Million shares shorted with days to cover at 2.11.

Aflac Incorporated (AFL) estimates and forecasts

Figures show that Aflac Incorporated shares have outperformed across the wider relevant industry. The company’s shares have lost -30.7% over the past 6 months, with this year growth rate of -2.7%, compared to -16.9% for the industry. Other than that, the company has, however, lowered its growth outlook for the 2020 fiscal year revenue. Growth estimates for the current quarter are -8.6% and -1% for the next quarter. Revenue growth from the last financial year stood is estimated to be -2.6%.

3 analysts offering their estimates for the company have set an average revenue estimate of $5.48 Billion for the current quarter. 3 have an estimated revenue figure of $5.44 Billion for the next quarter concluding in December 01, 2020. Year-ago sales stood $5.54 Billion and $5.6 Billion respectively for this quarter and the next, and analysts expect sales will grow by -1% for the current quarter and -2.9% for the next.

If we evaluate the company’s growth over the last 5-year and for the next 5-year period, we find that annual earnings growth was +6.4% over the past 5 years. Earnings growth for 2020 is a modest +16.7% while over the next 5 years, the company’s earnings are expected to increase by 1.6%.

AFL Dividends

Aflac Incorporated is expected to release its next earnings report between October 27 and October 27 this year, and investors are excited at the prospect of better dividends despite the company’s debt issue. The forward dividend is 1.12 at a share yield of 3.09%. The company’s dividend yield has gone up over the past 12 months, with a 5 Year Average Dividend Yield of 2.29%.

Aflac Incorporated (NYSE:AFL)’s Major holders

Insiders own 8.52% of the company shares, while shares held by institutions stand at 64.68% with a share float percentage of 70.71%. Investors are also buoyed by the number of investors in a company, with Aflac Incorporated having a total of 1338 institutions that hold shares in the company. The top two institutional holders are Vanguard Group, Inc. (The) with over 66.66 Million shares worth more than $2.28 Billion. As of March 30, 2020, Vanguard Group, Inc. (The) held 9.29% of shares outstanding.

The other major institutional holder is Blackrock Inc., with the holding of over 56.03 Million shares as of March 30, 2020. The firm’s total holdings are worth over $1.92 Billion and represent 7.81% of shares outstanding.

Also the top two Mutual Funds that are holding company’s shares are Vanguard Total Stock Market Index Fund and Vanguard 500 Index Fund. As of March 30, 2020, the former fund manager holds about 2.85% shares in the company for having 20466011 shares of worth $700.76 Million while later fund manager owns 15.11 Million shares of worth $517.29 Million as of March 30, 2020, which makes it owner of about 2.11% of company’s outstanding stock.