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So, funny story—years back, I was knee-deep in some research about New Mountain Finance Corp. (yeah, ticker NMFC for those interested) and stumbled on a surprise. Turns out, the CEO was my childhood buddy’s little bro. You know, that annoying kid who tried to muscle into our ping pong matches. And now? There he was, steering a big-shot business development company. Life’s wild, huh?
Anyway, he’s no longer at the helm, but the company’s still doling out a fat 12% dividend. Kinda makes you wonder if it’s as rock-solid as my pal’s ping pong smashes from back in the day.
New Mountain’s all about lending cash to companies with EBITDA between 10 and 200 million bucks. And its investment portfolio? Talk about variety! Healthcare services top the list with 11%, then there’s enterprise resource planning software at 8%, and education plus consumer services each sitting at 7%. Quite the mixed bag.
Now, because it’s a BDC, folks like us turn to net investment income (a.k.a. NII) to check if the cash flow is keeping that dividend afloat. Last year was a bit of a bummer—NII slipped from $240 million to $224 million. And yeah, Safety Net frowns upon shrinking cash flow. It’s like, “Uh-oh, is this the start of something bad?” Sometimes it’s just a blip, not an omen, but they still slap a downgrade on their dividend safety rating. Better safe than sorry, right?
This year’s looking up though. Predictions have NII soaring to $293 million, the highest in ages. As long as they hit more than $224 million by 2025, that ol’ downgrade might get reversed.
Despite that drop, listen to this: from the $224 million, New Mountain only shelled out $147 million in dividends, putting their payout ratio at 66%. Expected growth means this payout figure might hit $154 million, but thanks to rising NII, the payout ratio could shrink to a comfy 53%. Not too shabby.
Now, here’s the kicker. New Mountain’s been slashing dividends—four cuts since 2020, with three in just over a year. Sure, some blame goes to their own decisions to hike before cutting back. Still, if they’ve done it before, well, they might do it again.
Currently, the quarterly dividend sits at $0.32 per share, which is a whopping 12% yield. As long as they keep that NII coming, they can support it. But with those cuts in mind, can investors ever really feel at ease? Not likely.
Dividend Safety Rating: F. Yeah, not the grade anyone wants to bring home.
Got another stock dividend you’re curious about? Drop the ticker in the comments. Or check if we’ve already dissected it—hit the “Search” button on the Wealthy Retirement homepage and give it a whirl.
Remember, Safety Net only tackles individual stocks, not ETFs or any fund-like shenanigans.
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