Golub Capital BDC Inc: This 7.3% Yielder Is Paying More Than You Think
This High-Yield Stock Looks Interesting
In this day and age, most investors would agree that a dividend yield of 7.3% is quite impressive. What’s even more impressive is that the company behind this 7.3% yield has actually been paying more than what the official number suggests.
The stock in question is Golub Capital BDC Inc (NASDAQ:GBDC), a business development company (BDC) headquartered in Chicago.
The firm primarily invests in middle-market businesses in the U.S. that are backed by private equity sponsors. In the company’s own words, its investment objective “is to generate attractive total returns to our stockholders in the form of current income and capital appreciation through debt and minority equity investments.” (Source: “GBDC Overview,” Golub Capital BDC Inc, last accessed December 6, 2019.)
Like I said, this is a generous dividend payer. Golub Capital BDC stock’s 7.3% yield is calculated by dividing its annualized payout of $1.32 per share (based on a quarterly dividend rate of $0.33 per share) by its share price of $18.12.
Now, given that most stocks in the market don’t even yield half as much, GDBC stock’s payout can look a bit risky. So let’s dig into the company’s financials and see whether it can actually cover its dividends.
Is the Dividend Safe at Golub Capital BDC Inc?
Golub Capital BDC last reported earnings on November 25. The report showed that, in the fourth quarter of the company’s fiscal-year 2019 (which ended September 30), it earned a net investment income of $0.37 per share. The amount was in excess of the $0.32 per share dividend paid during the quarter. (Source: “Golub Capital BDC, Inc. Declares Fiscal Year 2020 First Quarter Distribution Of $0.33 Per Share, A Special Distribution Of $0.13 Per Share And Announces Fiscal Year 2019 Fourth Quarter Financial Results,” Golub Capital BDC Inc, November 25, 2019.)
In GBDC’s full-year fiscal 2019, it generated a net investment income of $1.35 per share. During this period, the company paid four regular cash distributions totaling $1.28 per share. So again, the BDC had outearned its payout.
Now, remember when I said the company has been paying more than what the official yield number suggests? Well, that’s because, rather than paying just quarterly dividends like most companies, Golub Capital BDC stock has also been rewarding investors with special dividends.
The latest special dividend—$0.12 per share—was declared on November 22 and will be paid on December 30 to shareholders of record as of December 12. (Source: “Dividend History,” Golub Capital BDC Inc, last accessed December 6, 2019.)
During the company’s latest earnings conference call, chief executive officer David Golub said, “The special distribution is due to taxable income exceeding distributions over the prior year. I’d point out this is the fourth consecutive year we will be paying a special distribution.” (Source: “Golub Capital BDC, Inc. (GBDC) CEO David Golub on Q4 2019 Results – Earnings Call Transcript,” Golub Capital BDC Inc, November 27, 2019.)
A New Catalyst for GBDC Stock
So, what we have here is a high-dividend stock that has given investors more than its stated yield. The best part is, the company recently completed an acquisition, and that could take its business to another level.
Golub Capital BDC acquired Golub Capital Investment Corporation in September. The acquisition was the main reason why the BDC’s net asset value rose $0.81 per share, or 5.1%, in the quarter ended September 30. (Source: “Golub Capital BDC Inc, Inc. Investor Presentation: Quarter Ended September 30, 2019,” Golub Capital BDC Inc, last accessed December 5, 2019.)
To put that in perspective, the increase in net asset value per share is more than two and a half times the company’s historical quarterly regular dividend.
Also, this acquisition allowed Golub Capital BDC to increase its size and scale, boosting its earnings power. One consequence is that the company can now pay a higher dividend.
In fact, its current quarterly dividend rate of $0.33 per share was the result of a dividend increase following the acquisition. Previously, the company was paying $0.32 per share.
Bottom Line on Golub Capital BDC Inc
Add it all up and it becomes easy to see why GBDC stock could be something special. Golub Capital BDC Inc already offers a very generous yield, and it has paid multiple special dividends on top of it.
The company also made an acquisition deal that could provide meaningful accretion to its financials. With greater earning power than before, Golub Capital BDC stock could return even more value to income investors.