Oh boy, trying to keep up with something like Saratoga Investment Corp (or SAR, if you’re into stock symbols) is like chasing squirrels in a park. You may not have heard of them, because, well, it’s one of those small cap business development companies or BDCs. But here’s the kicker—shareholders are really loving this sweet 12% yield. I mean, who wouldn’t?
Still, you gotta wonder, is that 12% gonna last, or is it just a flash in the pan? I mean seriously, does it stick around long enough to get people buzzing?
Here’s the deal: they’re based in New York and what they do is lend cash to companies that banks won’t touch. Health, tech, consumer services—you name it, they dabble in it.
Being a BDC is sort of like being in a secret club where net interest income (yeah, NII if you’re cool) is your cash meter. So last year wasn’t their best. NII took a 7% dip after rocking some solid growth for years. Ouch, right?
This year, they’re banking on a 19% NII growth. Sounds positive, but there’s this Safety Net Model-thingy being all strict and grumpy. Any slip-ups and Saratoga gets a slap on the wrist—a one-grade penalty for the last year’s dip. It’s like trying to impress a picky teacher with half-finished homework.
So last year, they forked out $40.7 million in dividends, with a 77% payout ratio. This year? They’re dialing it down to 74%, still safe unless you cross that 100% line. Phew, dodged a bullet!
Their dividend record isn’t too shabby, except for 2020—a pandemic special, I guess. Dropped the dividend from $0.56 to $0.40, but hey, stuff happens. After that, it’s pretty much been up, up, and away (with no wild special dividends crashing the party).
Now, in an interesting twist, they swapped quarterly dividends for monthly ones this year. Yep, $0.25 a pop each month, making it $3.00 per year or a jaw-dropping 12.3% yield. Not complaining.
But (there’s always a “but”), that 2020 cut still stings, and that NII’s nosedive last year? Oof. Saratoga’s gotta show some serious NII growth this year if they want that penalty gone. Sort of like saying, “I promise I won’t break your favorite vase again.”
Until they prove things are looking up, their dividend safety rating says there’s a bit of risk here.
So, what’s the rating? It’s a solid “C” for now. Not great, not terrible. Let’s see what they pull out of the hat next year.
