PNNT

What is Risk?

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Image Source: Mike Cohen By Matt Warren Let’s start by talking about what isn’t risk. Risk isn’t easily measured and yet that is what the asset management industry and academia tend to serve up to the average and professional investor alike. You will see the standard deviation of a stock or portfolio, showing how much the value wiggles. You will see beta, which shows how much the value wiggles as compared to the benchmark’s own wiggles. You will see things like the Sharpe and Sortino ratios, which tackle further quantifiable ways to describe risk–and the list of equations goes on and on. Do you know what is a much more difficult question for an asset manager to answer? How much … Read more

What About BDCs?

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Business Development Companies, or BDCs, are often considered by dividend investors as a result of their quite sizable dividend yields, as compared to the overall market. In this piece, let’s take a look at how these companies operate and then also compare some important metrics between the various players. First, let’s looks at the below slide from Prospect Capital, which highlights some important differentiating features of BDCs. Image Source: Prospect Capital Investor Presentation Importantly, please know that you will need to consult a tax professional to determine how to treat the various dividend and return of capital from BDCs. Let’s also look at the below graphic from Prospect Capital (PSEC), which highlights the growth in BDCs over the past 10 … Read more

Risky Business: Business Development Companies

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Big name business development companies (BDCs) such as Prospect Capital () and Main Street Capital () continue to be vulnerable equities, in our view, particularly as credit conditions deteriorate. Ongoing pressure in the energy and metals and mining markets has increased the wariness of investors and their propensity to tolerate weak credits (and those tied to them), and several factors loom that may significantly increase the already-high level of business-model risk associated with BDCs. Investing in these relatively obscure publicly-traded “venture capital” entities is not for the faint of heart. The market may bear witness to a surge in defaults within the high-yield arena in coming years, and a prolonged weakness in commodity prices may seal that fate. Mostly overleveraged upstream … Read more

Speculative Stocks Sinking

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“The world economy is in its worst shape since the Great Recession. And medium- to low-grade corporate credits will not escape the drag of global malaise.” – Moody’s, September 25, 2015 All is not well in the “medium-to-low grade corporate credit market, and if a warning from Moody’s wasn’t enough, famed activist investor Carl Icahn (IEP) applied more pressure with his controversial and headline-grabbing 15-minute video, “Danger Ahead.” We think it makes sense to be cautious in today’s gyrating market environment, which continues to face a number of tangible headwinds, not the least of which are stretched equity valuations, “broken” technicals, and worsening sentiment. The collapse in China’s stock market, its potential knock-on effects across the global banking system, the … Read more

Prospect Capital Cuts Dividend

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As is often the case, the larger the dividend yield the more risky the payout. I talk about this quite a bit in the video: ‘Dividends, Dividends, Dividends.’ Please have a look. All else equal, we tend to prefer cash-flow-based operating companies such as Microsoft (MSFT) rather than opaque, risky structures such as business development companies (BDC’s), where traditional fundamental analysis is less-informative. Sure enough, a dividend cut at Prospect Capital (PSEC) came in a warm holiday package today. The business development company announced that it will reduce cash dividends to shareholders to $0.08333 on a monthly basis with the following record and payment dates: 8.333 cents per share for February 2015 (record date of February 27, 2015 and payment … Read more

If Yields Go Up, Are BDCs Done For?

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Key Takeaways: ·         What are BDCs? Business development companies (BDCs) allow small investors access to a private equity-like investment that often sports a high yield. ·         How do BDCs make money? Like any capital source, BDCs make the spread between the yield on investments and cost of the debt. BDCs can also make money from well-performing assets that are sold. ·         What are the Risks of BDCs? Poor portfolio performance, mismanagement, and interest rate swings are among the main risks to BDCs. ·         Why is the Sector under Pressure? Record low SBIC debenture costs could come to an end if interest rates rise. BDC investments start to look less attractive on a relative basis when yields rise. ·         Which BDC … Read more

Dividend Increases/Decreases for the Week Ending March 3

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Below we provide a list of firms that raised/lowered their dividends during the week ending March 3. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week Arbor Realty Trust (ABR): now $0.17 per share quarterly dividend, was $0.16. Avnet, Inc. (AVT): now $0.18 per share quarterly dividend, was $0.17. Bank of Nova Scotia (BNS): now CAD 0.76 per share quarterly dividend, was CAD 0.74. Best Buy (BBY): now $0.34 per share quarterly dividend, was $0.28. Big Lots (BIG): now $0.25 per share quarterly dividend, was $0.21.               Canadian Natural Resources (CNQ): now CAD … Read more