Core Viewpoint - OFS Capital's 17% dividend yield is among the highest in the business development industry, but its sustainability is in question due to declining portfolio value, deteriorating earnings growth, higher non-accruals, and a weak cash position, leading to a hold rating for the stock [1][14]. Dividend Performance - The 4-year average dividend yield for OFS Capital is 11.62%, significantly higher than the sector median of 3.29%, indicating a 252.78% difference [2]. - The current dividend yield of 17.00% is 449.62% above the sector median of 3.09% [2]. - The dividend yield has increased due to a share price selloff rather than dividend growth, with the company losing almost 30% of its share price year-to-date [3][4]. Financial Performance - In the latest quarter, OFS Capital reported a net investment income of 0.34 per share, indicating that dividends are not covered by net investment income [4]. - Earnings forecasts suggest a decline in net investment income, with estimates of 1.36 per share [5][6]. - The company has only around 100 million over the past four quarters, now standing at $398 million [7]. - The company has been highly selective in its underwriting policies and cautious about new originations, which may hinder investment income growth [8]. - As of the end of the June quarter, 92% of the loan portfolio was at floating rates, and potential rate cuts could negatively impact investment income and margins [9]. Market Sentiment and Valuation - Despite a cheap stock price based on valuations and net asset value, potential returns are limited due to a lack of financial support and the risk of a dividend cut, which could negatively affect investor sentiment [9]. - The quant rating for OFS Capital is 3.35, indicating a hold rating, with low grades on momentum, growth, and profitability [12]. Conclusion - The current financial outlook does not support OFS Capital's high dividend yield, suggesting it may not be a suitable investment at this time, with investors advised to wait for a better entry point [14].
OFS Capital: Risk Of Dividend Cut Could Keep Hurting Price Performance