Monthly Dividend Stock In Focus: Oxford Square Capital – Sure Dividend

Up to date on September twelfth, 2024 by Felix Martinez

Buyers in search of excessive yields may think about shopping for shares of Enterprise Growth Firms, or BDCs for brief. These shares continuously have the next dividend yield than the broader inventory market common.

Some BDCs even pay month-to-month dividends.

You possibly can obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter, like dividend yield and payout ratio) by clicking on the hyperlink under:

Oxford Sq. Capital Company (OXSQ) is a BDC that pays a month-to-month dividend. Oxford Sq. can be a really high-yielding inventory, with a yield of 14.5% based mostly on anticipated dividends for fiscal 2024. That is greater than 8 occasions the common yield of the S&P 500.

Nevertheless, buyers ought to at all times remember that the sustainability of a dividend is simply as necessary (or extra necessary) than the yield itself.

BDCs typically present excessive ranges of earnings, however many (together with Oxford Sq.) have hassle sustaining their dividends, notably throughout recessions. This text will look at the corporate’s enterprise, development prospects and consider the protection of the dividend.

Enterprise Overview

Oxford Sq. Capital Corp. is a BDC (Enterprise Growth Firm) specializing in financing early and center–stage companies via loans and CLOs. You possibly can see our full BDC listing right here.

The corporate holds a well-diversified portfolio of First–Lien, Second–Lien, and CLO fairness property unfold throughout seven industries, with the very best publicity in software program and enterprise providers, at 38.2% and 20.6%, respectively.

Supply: Investor presentation

On August thirteenth, 2024, Oxford Sq. introduced its Q2 outcomes for the interval ending June thirtieth, 2024. The corporate reported whole funding earnings of $11.4 million, a lower from $13.5 million within the earlier quarter. This decline was primarily on account of decreased curiosity earnings from debt investments and decrease earnings from securitization autos.

The weighted common yield on debt investments dropped barely to 13.7% from 13.9% in Q1. Nevertheless, the money distribution yield on money income-producing CLO fairness investments elevated from 13.7% to 16.2%. The efficient yield on CLO fairness investments was 9.4%, down marginally from 9.5%.

Complete bills, primarily together with curiosity prices and administration charges, had been $3.7 million, $450,000 decrease than in Q1. Because of this, web funding earnings (NII) rose by $1.2 million to $7.7 million, or $0.13 per share. The corporate’s web asset worth (NAV) per share barely improved to $2.43 from $2.42. Based mostly on its present portfolio, Oxford Sq. tasks a full-year 2024 funding earnings per share (IIS) of $0.46.

Supply: Investor presentation

Development Prospects

The corporate’s funding earnings per share has been declining at an alarming price, as financing has change into cheaper, stopping Oxford Sq. from refinancing at its earlierly increased charges. Moreover, the corporate has been traditionally over–distributing dividends to shareholders, decaying its NAV, and due to this fact future earnings technology, on account of fewer property.

Contemplating that the Fed has made it clear that they intend to extend charges a minimum of as soon as extra this 12 months, we count on that Oxford Sq. will be capable to generate secure funding earnings per share within the close to time period.

The 2020 dividend lower ought to lead to Oxford Sq. retaining some money, hopefully beginning to regrow its NAV. With charges unlikely to proceed moving any decrease, earnings technology ought to stabilize over the subsequent few years

With funding throughout a large breadth of various industries, Oxford Sq. has a reasonably balanced portfolio. The corporate’s high three industries do make up many of the portfolio, however they’re in several areas of the economic system. This provides some safety in case of a downturn in a single business.

Nevertheless, with charges declining over time, the corporate’s receivables have been additional pressurized, worsening its financials yearly. Total, we imagine that the corporate’s future investment earnings technology carries substantial dangers, whereas a possible recession and an hostile financial setting may severely injury its curiosity earnings.

Dividend Evaluation

Oxford Sq. solely not too long ago started paying a month-to-month dividend, with the primary being distributed in April 2019. Complete dividends paid over the previous few years are listed under:

2015 dividends: $1.14
2016 dividends: $1.16 (1.8% improve)
2017 dividends: $0.80 (31% decline)
2018 dividends: $0.80 (no improve)
2019 dividends: $0.80 (no improve)
2020 dividends: $0.6120 (23.5% decline)
2021 dividends: $0.42 (31.4% decline)
2022 dividends: $0.42 (Flat)
2023 dividends: $0.54(28.5% improve)

Shareholders acquired a small improve in 2016, adopted by three giant dividend reductions since 2017. This inconsistency in dividend payout is because of the firm’s unstable monetary efficiency.

Oxford Sq. at the moment pays a month-to-month dividend of $0.035 per share, equaling an annualized payout of $0.42 per share. This is able to characterize a lower in year-over-year efficiency for dividends in 2024.

Based mostly on a full-year payout of $0.46 per share, Oxford Sq. inventory yields 14.5%. Whereas the dividend cuts in recent times have been giant, the dividend yield stays very excessive. That mentioned, buyers shouldn’t focus solely on yield; dividend security is a crucial consideration for earnings buyers, and in that regard, Oxford Sq. leaves loads to be desired.

Utilizing our expectation for a full-year funding earnings per share of $0.46 for 2024, the corporate is projected to take care of a dividend payout ratio of 91% for 2024. Nevertheless, if funding earnings declines from present ranges, one other dividend lower may outcome.

Closing Ideas

Oxford Sq. has a strong enterprise mannequin, with diversification throughout funding property and industries. The corporate has additionally taken steps to construct up its much less dangerous asset place whereas reducing its reliance on riskier CLOs.

That mentioned, Positive Dividend recommends that risk-averse buyers keep away from Oxford Sq.. We imagine that the dividend doesn’t provide sufficient security. The corporate distributes primarily all of its funding earnings, leaving little wiggle room. Any drops in funding earnings may end up in dividend cuts.

We echo these considerations and price Oxford Sq. a Maintain.

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