Fidus Investment (Nasdaq: FDUS) is an under-the-radar business development company (BDC) that yields more than 8%. The Evanston, Illinois-based company provides debt and equity financing to American companies that need cash for acquisitions or recapitalization.
Its portfolio includes…
- $39 million in debt and equity in insulation manufacturer GreenFiber
- $55 million in debt and equity in FDS Avionics, which makes high-definition displays for airplanes
- $18 million in debt, equity, warrants and preferred stock in human resources software company Acendre Midco.
Fidus’ quarterly dividend is $0.41, which gives the stock an 8.5% yield. But it also often pays special dividends.
For example, in the second quarter, Fidus paid investors an additional $0.29 per share. In the first quarter, shareholders received an extra $0.25 per share.
To determine the safety of a company’s dividend, I look at both the regular quarterly dividend and the total dividend, including special payments.
As far as the quarterly dividend goes, in 2022, the company paid out $1.44 per share. At the end of the year, there were 24.5 million shares outstanding, which means Fidus paid out approximately $35.3 million in quarterly dividends.
It generated $46.5 million in net investment income for the year, giving it a payout ratio of 76%. I’m generally comfortable with BDCs paying out all of their net investment income in dividends. But not more than 100%.
This year, the quarterly dividend has increased to $0.41 per share. There were 24.8 million shares outstanding as of the end of the first quarter, which means Fidus will pay shareholders about $40.7 million.
There are no net investment income estimates for this year, but earnings and revenue are projected to grow 25%, so we’ll assume net investment income is going to rise also. Even if net investment income grows only 10%, that should be plenty to ensure that the quarterly dividend can continue to be paid.
In 2022, the company paid shareholders $49.1 million, more than the $46.5 million it generated in net investment income. That’s not good.
This year, Fidus is forecast to pay shareholders $62.2 million, which means net investment income will need to increase by 34% for the company to be able to afford its dividend.
Management cut the quarterly dividend in 2020 from $0.39 to $0.30, so it has only recently gotten back to where it was in 2019.
Fidus should be able to generate enough net investment income to sustain the $0.41 quarterly dividend. But it does not make enough money to afford the total dividend, including the special dividends.
Since the special dividend is variable anyway, there is a very high likelihood of a reduction.
Dividend Safety Rating:
Quarterly dividend: B
Total dividend, including special dividends: D
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