Gladstone Capital Corporation: Earn Monthly Dividends With a 9.1% Yield
This Monthly Dividend Stock Deserves a Look
If you are looking to get paid monthly from stocks, then Gladstone Capital Corporation (NASDAQ:GLAD) deserves your attention. The reason lies in its distribution frequency and the sheer size of its payout.
We know that most dividend-paying companies follow a quarterly distribution schedule—that is, once you received a dividend check, you’d have to wait three months for another one.
Gladstone Capital Corporation, on the other hand, switched to a monthly dividend schedule in 2003 and has been making consecutive monthly dividend payments ever since. (Source: “Distribution History and Tax Information,” Gladstone Capital Corporation, last accessed April 1, 2019.)
Right now, GLAD stock pays investors $0.07 per share on a monthly basis, which comes out to an annual yield of 9.1%.
In other words, what we have here is a monthly dividend stock that also offers one of the highest yields in today’s market. So inevitably, it makes us wonder whether the payout is actually safe.
GLAD Stock: Is the Dividend Safe?
On that front, note that Gladstone Capital Corp is a business development company (BDC) that focuses on providing loans to small and medium-sized businesses in the U.S. Each loan typically ranges from $7.0 million to $30.0 million in size, with terms of up to seven years. The company also has a small portion of equity investments.
As is the case with most BDCs, the key performance metric to check at Gladstone Capital Corp is its net investment income. By comparing this figure to the company’s dividend payments made in a given reporting period, we can see whether the payout was safe.
In GLAD’s fiscal year 2018, which ended September 30, 2018, the company generated a net investment income of $0.85 per share while paying total dividends of $0.84 per share. That translated to a payout ratio of 98.8%, so the margin of safety was quite thin. (Source: “Gladstone Capital Corporation Reports Financial Results for its Fourth Quarter and Fiscal Year Ended September 30, 2018,” Gladstone Capital Corporation, November 14, 2018.)
In the first quarter of the company’s fiscal year 2019, which ended December 31, 2018, the company earned $0.21 per share in net investment income. Its dividend payments, on the other hand, also totaled $0.21 per share for the quarter. So while Gladstone Capital Corp covered its payout, it didn’t leave any room for error. (Source: “Gladstone Capital Corporation Reports Financial Results for its First Quarter Ended December 31, 2018,” Gladstone Capital Corporation, February 6, 2019.)
Still, it should be noted that the company does have a solid business model in place. At the end of calendar-year 2018, first-lien loans represented 54% of GLAD’s total portfolio fair value, while second-lien loans represented another 34.7%. (Source: “Gladstone Capital (GLAD) CEO David Gladstone on Q1 2019 Results – Earnings Call Transcript,” Gladstone Investment Corporation, February 7, 2019.)
A lender of first lien will stand first in line to get paid in the event of borrower liquidation. With senior secured loans making up the bulk of its portfolio, Gladstone Capital Corporation can generate a predictable interest income stream.
The yield on these loans is pretty good, too. As of December 31, 2018, the weighted average yield on Gladstone Capital Corporation’s interest-bearing investments stood at 12.3%.
The Bottom Line on Gladstone Capital Corporation
As an income stock, Gladstone Capital Corporation isn’t really known for providing huge capital gains. In fact, the stock is basically trading at the same level as it did two years ago.
Still, the amount of cash the company managed to return to investors is nothing short of impressive. Even if its share price stays the same, GLAD stock investors can earn a cash return of 9.1% just by collecting dividends.
For income investors who want to use dividends to cover their daily expenses, GLAD stock’s monthly payout schedule makes the budgeting process much easier. And with an ultra-high yield backed by net investment income, this monthly dividend stock could be worth considering.