Fidus Investment (US:FDUS) Seeking Alphaยท2024-08-05 00:20Core Viewpoint - Fidus Investment (NASDAQ:FDUS) is positioned as a strong investment opportunity due to its durable cash flow and a robust portfolio in defensive industries, allowing for sustainable base dividends even in challenging market conditions [1][5] Financial Performance - In Q2 2024, FDUS expanded its adjusted net investment income (NII) by approximately 18% year-over-year, but the adjusted NII per share decreased to $0.57, down $0.05 from Q2 2023 [3] - The net asset value (NAV) per share increased by $0.14 from the previous quarter and $0.37 from Q2 2023, indicating positive underlying asset performance [3] Challenges - The decline in adjusted NII per share is attributed to spread compression in the BDC sector, with a drop of around 20 basis points over the past three quarters [3] - Equity dilution from additional at-the-market (ATM) issuances has pressured per-share results, leading to underleveraged balance sheets and surplus liquidity [3][4] Growth Prospects - FDUS has the lowest leverage profile in the BDC space, with a debt-to-equity ratio of 0.5 times, which is seen as a temporary issue that provides liquidity for portfolio growth [4] - New investment funding for Q2 2024 totaled approximately $62 million, with a focus on first lien securities, which now make up 71% of the portfolio [4] Dividend and Credit Quality - The base dividend coverage remains strong at 132%, with an attractive yield of 8.9%, and a forward annualized yield of approximately 12.2% when including supplemental dividends [4] - The portfolio's credit quality is robust, with non-accruals under 1% of total portfolio value, and no first lien-related non-accruals since 2019 [4] Investment Case - Despite surface-level negative results in Q2 2024, the underlying dynamics of growth and portfolio quality remain solid, making FDUS a reliable option for income-seeking investors [5]