GAIN Stock: Collect Monthly Dividends with an 8.2% Annual Yield
A High-Yield Monthly Dividend Company
Today’s chart highlights a monthly dividend stock with an 8.2% annual yield.
I’m looking at Gladstone Investment Corporation (NASDAQ:GAIN), a business development company (BDC) headquartered in McLean, Virginia.
Gladstone invests in lower-middle-market businesses in the U.S. In particular, the company focuses on businesses with proven cash flows and good management teams. These companies tend to have annual profits of between $3.0 million and $10.0 million.
The number-one reason to consider GAIN stock right now is its generous monthly dividends. The company currently pays monthly distributions of $0.064 per share, usually at the end of each month. At the current price, GAIN stock has an annual dividend yield of 8.2%.
The payout has been growing, too. In 2013, Gladstone paid $0.60 in total regular dividends. In 2016, the amount has grown to $0.75. That’s an increase of 25%.
GAIN Stock Regular Dividend History
Source: “Distribution History,” Gladstone Investment Corporation, last accessed September 28, 2017.
Mind you, those were just regular monthly payments. Due to greater-than-expected returns from the company’s investment portfolio, Gladstone also rewards investors with special dividends from time to time. Since 2012, the company has paid four special dividends on top of its regular scheduled payments.
And if you are concerned about the risk that comes with investing in relatively small companies, note that Gladstone does have solid risk management measures in place.
First, the investments are well diversified. The company’s portfolio currently consists of equity or loans in 33 companies diversified across 17 states and 18 industries. Therefore, if one company encounters a problem, there is less likelihood that the situation would correlate with other companies in Gladstone’s portfolio, meaning the impact could be limited.
Second, even though the company focuses on lower-middle-market companies, it does not invest in risky startups. As a matter of fact, Gladstone usually avoids high-technology sectors and early-stage businesses altogether. Its specialization lies in light and specialty manufacturing, specialty consumer products and services, and industrial products and services.
Furthermore, most of Gladstone’s assets are invested in debt rather than equity. By the end of the second quarter, 56% of the company’s portfolio is invested in secured first-lien debt and 16% are invested in secured second-lien debt. When you invest in a first-lien loan, you will be the first one to get paid in the event of the borrower’s liquidation.
And even in its portfolio’s 28% of equity investments, a full 23 percentage points are invested in preferred equity. Preferred shares have a higher claim on a company’s assets and earnings, and preferred dividends have to be paid before regular dividends.
Last but certainly not least, 97% of Gladstone’s loan portfolio is variable rate. Therefore, if interest rates increase for whatever reason, the company would actually be able to generate higher interest income. And that would certainly be good news for GAIN stock investors.
And there you have it. Even though Gladstone invests in smaller businesses, it has done a good job managing its risk and the rising interest rate environment could become a major catalyst in the near future. That’s why income investors looking for a steady stream of monthly dividends should check out GAIN stock.
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