NEWT Stock: Frequent Payout Hikes
In today’s market, most companies would be proud if they can raise their dividends once a year. But at Newtek Business Services Corp (NASDAQ:NEWT), shareholders have been getting pay raises much more frequently.
Last week, Newtek announced that its board of directors declared a quarterly cash dividend of $0.48 per share, representing a 14.3% increase from the company’s previous payment of $0.42 per share. The new dividend will be paid on September 28, 2018 to shareholders of record as of September 17. (Source: “Newtek Business Services Corp. Declares Third Quarter 2018 Dividend of $0.48 per Share,” Newtek Business Services Corp, August 23, 2018.)
The neat part is, just over three months ago, the company had already raised its dividend by five percent from $0.40 per share to $0.42 per share. That means that so far into 2018, Newtek Business Services Corp has already delivered two dividend hikes to investors. And based on what the company has been doing, there will likely be another payout increase sometime down the road. (Source: “Newtek Declares Second Quarter 2018 Dividend of $0.42 per Share,” Newtek Business Services Corp, May 11, 2018.)
NEWT Stock: A Unique Business Development Company
Newtek Business Services Corp is a business development company (BDC). In this day and age, most BDCs are lenders to middle-market businesses. But Newtek does more than just lending; it also provides middle-market companies with a wide range of business services, including payroll and benefits processing, web design and e-commerce business solutions, and electronic payment processing, just to name a few.
While the company is not exactly a familiar name to investors, it has built a solid reputation as a business services provider. Today, Newtek, along with its portfolio companies, provides business solutions to more than 100,000 small- and medium-sized business accounts in all 50 states. (Source: “Planet MicroCap Showcase,” Newtek Business Services Corp, April 25, 2018.)
At the same time, like other BDCs, Newtek collects oversized interest payments from its lending segment. Because small- and medium-sized businesses can’t always get loans from banks, they often have to pay higher financing costs. For lenders like Newtek, that has created a tidy interest income stream.
Note that BDCs are required by law to pay out most of their profits to shareholders through dividends. In return, they pay little to no taxes on the company level. That’s why they have become some of the highest-yielding names in today’s market.
At Newtek, management has made it very clear on how they set up their dividend policy, stating that, “The Company’s Board of Directors expects to maintain a dividend policy with the objective of making quarterly distributions in an amount that approximates 90 – 100% of the Company’s annual taxable income.” (Source: Newtek Business Services Corp, August 23, 2018, op cit.)
Newtek Business Services Corp: Delivering Safe and Increasing Dividends
The company also stands out when it comes to dividend safety. In the second quarter of 2018, Newtek generated adjusted net investment income of $8.2 million, or $0.44 per share, representing a 7.3% increase on a per share basis. Moreover, the amount provided more than enough coverage of its second-quarter cash dividend of $0.42 per share. (Source: “Newtek Business Services Corp. Reports Second Quarter 2018 Financial Results,” Newtek Business Services Corp, August 1, 2018.)
In the first six months of this year, Newtek’s adjusted net investment income came in at $16.3 million, or $0.88 per share. This marked an 8.6% improvement from the $0.81 per share earned in the year-ago period. And again, the amount easily covered its first six months’ dividend payment of $0.82 per share.
Going forward, the company expects to pay an annual cash dividend of $1.80 per share for full-year 2018, which would mark a 9.8% increase from last year’s annual dividend payment of $1.64 per share.
Counting the latest dividend hike, Newtek has declared total dividends of $1.30 per share for the first three quarters of 2018. If the company achieves its distribution guidance for 2018, its fourth-quarter dividend would be $0.50 per share. So investors can look forward to another dividend hike in the fourth quarter of this year.
The Bottom Line on NEWT Stock
When a company offers a safe and increasing payout, you’d expect its shares to be highly sought after. And indeed, NEWT stock surged 36.9% over the past 12 months. In the last five years, the stock is up 86.3%.
Since dividend yield moves inversely to share price, a solid bull run like this usually means the company’s yield is now subdued. But that’s not really the case at Newtek. Trading $23.48 apiece, NEWT stock still offers investors a generous annual dividend yield of 8.2%.
For yield-seeking investors, this BDC looks like an opportunity.