Monroe Capital Corp: Rising Share Price & Safe 10% Dividend
March 25, 2021
Monroe Capital Stock Is a Dividend Beast
Everyone wants to get more from their dividend stocks. Interest rates might be on the rise, but they’re still near record lows. And blue-chip stocks, while financially solid industry giants, do not pay frothy dividends. For many of them, dividends are a pleasant enticement, nothing more.
One of the best places for investors to find safe, high-yield dividends is among “alternative banks” like Monroe Capital Corp (NASDAQ:MRCC).
Like traditional financial institutions, alternative banks borrow money from depositors at low interest rates. Then, like typical banks, they lend that money out to businesses in the form of high-yield loans.
Alternative banks’ profits come from the difference between what they pay to lenders and what they collect in interest. But, unlike big banks, alternative banks don’t have to fork out cash on traditional overhead like branches, tellers, or ATMs.
Instead, they use their capital to help out small and midsized companies that have good cash flows. Because their clients are profitable and well established, they are less likely to default on their loans.
If something does go wrong (even Warren Buffett makes the odd mistake), alternative banks usually have senior status on their loans, which means they’re first in line to get paid.
Even the U.S. government loves alternative banks and wants them to succeed. To encourage lending, alternative banks are exempt from paying any form of corporate income tax if they pay at least 90% of their profits to shareholders. That means the vast majority of their interest income goes straight to the company’s bottom line.
That’s what makes alternative bank stocks like MRCC stock so enticing.
A premier boutique asset management firm, Monroe Capital is a leading provider of senior and junior debt and equity co-investments to middle-market companies in the U.S. and Canada. (Source: “Company Overview: Q4 2020,” Monroe Capital Corp, last accessed March 24, 2021.)
This alternative bank has about $9.4 billion in assets under management. About 86% of the company’s portfolio is made up of first-lien loans.
Monroe Capital Corp’s platform offers a wide variety of investment products to both institutional and high-net-worth investors, with a focus on generating high-quality “alpha” returns regardless of business or economic cycle.
At the end of 2020, the company had debt and equity investments in 89 portfolio companies with a total fair value of $547.0 million, compared to 79 portfolio companies with a total fair value of $522.3 million as of September 30, 2020.
Monroe Capital Corp has a diverse portfolio of high-returning secured debt.
| Sector | Percentage of Portfolio |
| High Tech Industries | 14.9% |
| Services: Business | 14.4% |
| Banking, Finance, Insurance & Real Estate | 13.3% |
| Investment Funds & Vehicles | 7.2% |
| Healthcare & Pharmaceuticals | 6.9% |
| Media: Advertising, Printing & Publishing | 5.8% |
| Chemicals, Plastics & Rubber | 5.1% |
| Services: Consumer | 4.6% |
| Beverage, Food & Tobacco | 3.8% |
| Consumer Goods: Durable | 3.4% |
| Retail | 3.4% |
| Construction & Building | 3.0% |
| Other | 14.2% |
(Source: Ibid.)
Despite the challenging economic environment, Monroe Capital reported another quarter of strong financial results. Most importantly for high-yield investors, the company reported another increase in its net asset value (NAV) and it fully covered its dividend with net investment income. (Source: “Monroe Capital Corporation BDC Announces Fourth Quarter and Full Year 2020 Results,” Monroe Capital Corp, March 2, 2021.)
Its fourth-quarter revenue was down 30.2% year-over-year and down six percent sequentially, at $12.6 million. Wall Street was looking for fourth-quarter revenue of $12.8 million.
Monroe Capital Corp’s fourth-quarter net investment income was $5.4 million, or $0.25 per share. This compares with $5.8 million, or $0.27 per share, for the quarter ended September 30. And it topped the Wall Street projections of $0.24 per share.
CEO Theodore L. Koenig commented, “We are pleased to report another quarter of strong financial results…As always, we continue to be focused on the interests of our shareholders and will operate with caution and remain focused on generation of Net Investment Income, preservation of capital and creation of shareholder value.” (Source: Ibid.)
Monroe Capital Corp’s adjusted NAV increased by 1.6% to $234.4 million ($11.00 per share), compared to $230.7 million ($10.83 per share) as of September 30, 2020.
On the dividend front, Monroe Capital stock’s dividend yield is 10%, with an annual dividend rate of $1.00 per share, or $0.25 per quarter.
Monroe Capital has a long history of providing high dividend yields. The company’s trailing annual dividend yield is 11%, and its five-year average dividend yield is 12%.
Chart courtesy of StockCharts.com
In addition to providing investors with a safe, high dividend yield, MRCC stock’s price has been climbing steadily higher, at least since early November. It’s up 87% year-over-year, 25% year-to-date, and 61% since last November. Despite the strong gains, Monroe Capital stock continues to maintain its frothy dividend.
The Lowdown on Monroe Capital Corp
As discussed earlier, Monroe Capital Corp has a growing portfolio of diversified debt and assets under management.
Thanks to the company’s strong financial position and steady, reliable income stream, MRCC stock has been able to provide investors with a safe, high dividend yield. Monroe Capital stock’s payout remains entirely sustainable.
