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TPVG: 11.7% Yield Positioned For Rising Rates And Ready To Rally

Summary

  • I am expecting a rally for TPVG’s stock price as well as higher earnings for TPVG over the coming quarters for the reasons discussed in this article.
  • On June 21, shareholders will vote on the proposal to immediately become subject to a minimum asset coverage ratio of at least 150%, permitting the company to double its leverage.
  • BDCs will begin reporting calendar Q2 2018 results in less than two months and I’m expecting TPVG to beat projected EPS and easily cover its dividend.
  • I recently purchased shares of TPVG as it was below my ST target price. Also, I use the BDC Google Sheets to identify when stocks are “oversold” with an RSI near 30 (TPVG is currently approaching).

You can read the full article at the following link:

Current BDC Yields:

Business development companies (“BDCs”) were pulling back (since May 2017) and as mentioned in “BDC Buzz Begins Purchases Of Higher Quality BDCs,” I have been buying additional shares of higher-quality BDCs, especially given the oversold conditions driving higher yields. As shown below, TriplePoint Venture Growth (TPVG) currently has a much higher yield than the average BDC:

As shown in the following chart, I recently purchased shares of TPVG as it was below my short-term target price. Also, I use the BDC Google Sheets to identify when stocks are “oversold” with a Relative Strength Index or RSI near 30 which it is currently approaching:

This information discussing TPVG was previously made available to subscribers of Premium Reports, along with real-time changes to my personal BDC positions, target prices and buying points, updated rankings and risk profile, any changes to dividend coverage and worst-case scenarios, suggested BDC portfolio as well as timing of Upcoming Public BDC Articles.

 

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PFLT: 8.3% Dividend Yield ‘Safe Enough For Your Grandma’ And Positioned For Rising Rates

Summary

  • PFLT continues to rally since my previous article and up almost 10% since March 1, 2018. I am expecting improved dividend coverage for the reason mentioned in this article.
  • PFLT’s portfolio yield continues to rise partially due to being invested in 100% floating rate assets driving higher earnings as shown in my Interest Rate Sensitivity Analysis.
  • Similar to other higher quality BDCs, PFLT’s management is focused on capital preservation and “underwriting as if we’re at the peak of the credit cycle”.
  • Management purchased additional shares at the recent lows and mentioned: “Our growing portfolio, increases in LIBOR, and the doubling of PSSL should provide a strong tailwind to growing our earnings stream”.
  • PFLT is trading under book value with first-lien senior secured investments at floating rates for investors that want solid returns without the typical amount of BDC-related risk.

You can read the full article at the following link:

Recent BDC Performance:

The stock price for PennantPark Floating Rate Capital (PFLT) has continued to rally since my previous article “First-Lien Portfolio Currently Paying A 9% Dividend Yield” discussing reasons to buy including rising portfolio yield and dividend coverage over the coming quarters.

As mentioned in previous articles, most business development company (“BDCs”) have outperformed the S&P 500 since March 1, even before taking into account dividends paid:

 

PFLT insiders were purchasing additional shares near the recent lows:

I am expecting BDCs to continue higher for many reasons, including the recently announced strong Q1 2018 results reported by most BDCs, with higher portfolio yields and management guidance for increased portfolio growth potential in 2018. Also, many BDCs reported higher-than-expected earnings and dividend coverage with increased net interest margins.

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GSBD: 9.4% Dividend Yield Supported By First-Lien And Strong Covenants

You can read the full article at the following link:

Summary

  • 9.4% dividend yield is excellent for a BDC with protective covenants for 90% of the portfolio, 54% is first-lien, and non-accruals decreased to 0.0% due to the restructuring of Bolttech.
  • GSBD has been trading lower, the market is likely expecting an equity offering, as the company was at its targeted leverage and trading at a premium to NAV.
  • Previously, I reduced GSBD’s short-term target price due to lower dividend coverage over the last two quarters and for my revised 2018 projections.

Quick BDC Market Update

As discussed in previous articles, business development companies (“BDCs”) have been pulling back since May 2017. The following chart uses UBS ETRACS Wells Fargo Busn Dev Co ETN (BDCS) as a rough proxy for the average BDC, many of which are near new lows (including GSBD).

Obviously, lower BDC prices have driven higher overall dividend yields with the average BDC currently yielding 10.6% as shown below. However, it should be noted that I’m expecting dividend cuts for a few of the higher yield BDCs as discussed in my recently updated Dividend Coverage Levels report.