{"id":51620,"date":"2023-08-22T13:13:45","date_gmt":"2023-08-22T17:13:45","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/lower-fees-driving-higher-dividends-golub-capital-nasdaqgbdc\/"},"modified":"2023-08-22T13:13:54","modified_gmt":"2023-08-22T17:13:54","slug":"lower-fees-driving-higher-dividends-golub-capital-nasdaqgbdc","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=51620","title":{"rendered":"Lower Fees Driving Higher Dividends: Golub Capital (NASDAQ:GBDC)"},"content":{"rendered":"
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Quick Introduction to Business Development Companies<\/strong><\/h2>\n

Business development companies (“BDCs”) invest shareholder capital in privately-owned, small- and medium-sized U.S. companies generating income from secured loans and capital gains from equity positions, much like venture capital or private equity funds. Anyone can invest in BDCs as they’re public companies traded on major stock exchanges.<\/span><\/p>\n

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\"How<\/span>
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BDC Buzz<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The BDCs in the chart below account for around 90% of the total assets and market capitalization for the sector. Over the two months, we discussed the portfolio credit quality and\/or dividend coverage for most of them including Ares Capital (ARCC), FS KKR Capital (FSK), Blue Owl Capital (OBDC), Prospect Capital (PSEC), Goldman Sachs BDC (GSBD), Oaktree Specialty Lending (OCSL), New Mountain Finance (NMFC), Hercules Capital (HTGC), Sixth Street Specialty Lending (<\/span>TSLX), PennantPark Floating Rate Capital (<\/span>PFLT), PennantPark Investment (<\/span>PNNT), BlackRock TCP Capital (<\/span>TCPC), Gladstone Investment (<\/span>GAIN), Gladstone Capital (<\/span>GLAD), Monroe Capital (<\/span>MRCC), Trinity Capital (<\/span>TRIN), and TriplePoint Venture Growth (<\/span>TPVG) in the following articles:<\/span><\/p>\n

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\"BDC<\/span>
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BDC Buzz & SEC Filings<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

This article discusses Golub Capital (NASDAQ:GBDC<\/span>) which is a “boring” lower-return BDC mostly for risk-averse investors. Before the markets opened on Aug. 8, we sent out a “Buy” recommendation discussing the recent reduction in management fees driving increased dividends paid to shareholders, as discussed below. Please note that the stock was trading at $14.10 at the time compared to the current $14.78.<\/p>\n

Many BDCs have investment grade (“IG”) bonds\/notes for lower-risk investors building a balanced 60\/40 portfolio (composed of 60% to 70% stocks\/equities and 30% to 40% bonds or other fixed-income offerings).<\/p>\n

GBDC has three bonds (CUSIPs: 38173MAA0, 38173MAB8, and 38173MAC6) with investment-grade ratings by S&P, Moody’s, and Fitch which currently have yield-to-maturities over 7%<\/strong>. These bonds were previously overpriced, but prices have declined and are now at attractive levels as discussed last month in “Introduction To BDC Google Sheets.”<\/em><\/p>\n

The following chart shows the recent decline in price for its bond due March 2027 with a current yield-to-maturity of over 7.4%:<\/strong><\/p>\n

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\"GBDC<\/span>
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FINRA<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

As mentioned below, the Asset Coverage and Interest Expense Coverage ratios are important indicators of the bond issuer’s ability to repay its debt. Higher coverage ratios indicate a lower risk of default and will be discussed in an upcoming article.<\/p>\n

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BDC Expense and Return Ratios<\/strong><\/h2>\n

Each quarter, we assess changes to BDC expense and return ratios. There are many factors to consider, including the credit quality of the overall portfolio compared with dividend returns. Ideally, higher-risk BDCs would pay higher returns, but that’s not always the case for the reasons discussed in this below. The following are the key factors driving the ability of BDCs to deliver returns to shareholders:<\/p>\n