Stellus Capital: This 12% Yield Is Too Good To Miss

Core Viewpoint - Stellus Capital Investment Corporation (NYSE: SCM) is considered a solid buy for passive income following a recent stock price pullback, with a reasonable dividend safety in a moderate inflation environment [1][2][15] Financial Performance - In 1Q24, Stellus Capital Investment covered its dividend with net investment income of $0.44 per share, resulting in a dividend pay-out ratio of 91% [9] - Total investment income for 1Q24 was reported at $26.0 million, an increase of 8% year-over-year, while net investment income rose by 13% year-over-year to $10.2 million [6][10] Investment Portfolio - As of March 31, 2024, Stellus Capital Investment's portfolio was valued at $875.9 million, with 91% consisting of Senior Secured Loans [3][4] - The company is heavily positioned in floating-rate loans, with 98% of its portfolio benefiting from interest rate hikes, which is expected to enhance net investment income [4][7] Market Conditions - The central bank is unlikely to cut interest rates in 2024, which would favorably impact Stellus Capital Investment's net investment income growth [5][10] - The stock is currently trading at a moderate premium of 3% to net asset value, making it an attractive option for passive income investors [11][15] Valuation and Outlook - The intrinsic value of Stellus Capital Investment is estimated at $14.75 based on a 1.10x NAV multiple, suggesting a potential upside of 6% from the current stock price of $13.88 [11] - The recent pullback in stock price is viewed as a buying opportunity, with the company maintaining a solid dividend coverage and healthy fundamentals [11][15]