Are you on the hunt for investments that offer high yields? Look no further than Business Development Companies, or BDCs for short. These stocks often boast dividend yields higher than the broader stock market averages. Some BDCs even pay out monthly dividends, making them an attractive option for income-seeking investors.
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Explore Monthly Dividend Stocks:
- Oxford Square Capital Corporation (OXSQ) is a prime example of a BDC that pays monthly dividends. With an impressive yield of 14.5% based on expected dividends for fiscal 2024, Oxford Square stands out as a high-yielding stock, surpassing the average yield of the S&P 500 by more than eight times.
- However, it’s crucial for investors to remember that the sustainability of a dividend is just as crucial as the yield itself. Many BDCs, including Oxford Square, struggle to maintain their dividends, especially during economic downturns.
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Business Overview:
- Oxford Square Capital Corp. functions as a BDC specializing in financing early and middle-stage businesses through loans and CLOs. The company maintains a diversified portfolio of assets across seven industries, with significant exposure in software and business services.
- Despite its strong business model, Oxford Square’s financial performance has seen fluctuations, with a recent decline in total investment income due to reduced interest income and lower earnings from securitization vehicles.
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Growth Prospects:
- Oxford Square faces challenges with declining investment income, primarily due to cheaper financing options hindering its ability to refinance at higher rates. The company’s historic over-distribution of dividends has impacted its NAV, potentially affecting future income generation.
- With the Federal Reserve signaling rate hikes, Oxford Square may stabilize its investment income in the near term, leading to potential growth if it retains cash to rebuild its NAV.
- Dividend Analysis:
- Oxford Square’s erratic dividend history reveals instances of small increases followed by substantial declines, reflecting the company’s financial volatility.
- While the stock boasts a high yield, investors should exercise caution as the dividend payout ratio remains high, leaving room for potential cuts if investment income falters.
In conclusion, while Oxford Square presents a diversified portfolio and a sound business framework, concerns about the safety of its dividend persist. As such, risk-averse investors may want to approach this stock with caution and consider alternative investment options that offer more dividend safety. Remember to do thorough research and seek professional advice before making any investment decisions.
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