FSK - FS KKR: Fat 14% Yield Offers Significant Downside Protection

2024-07-01 08:30:00 ET

Summary

• FS KKR Capital investors have outperformed their BDC peers recently.
• Buying sentiments have improved as FSK has lowered its non-accruals metrics.
• While caution is still justified, FSK's valuation bifurcation against its peers could narrow further, given its attractive valuation.
• FSK's valuation remains cheap. Its 14% dividend yield also helps mitigate significant downside risks.
• I argue why FSK investors could continue outperforming as the market seems too pessimistic. Read on.

FS KKR Stock: Outperformed BDC Peers Recently

FS KKR Capital ( FSK ) stock has performed relatively well, notching a 1Y total return of more than 20%. However, that pales in comparison to its business development peers, represented in the VanEck BDC Income ETF ( BIZD ). Accordingly, BIZD delivered a total 1Y total return of more than 26%, even though FSK still trades at a relatively attractive discount of 19% against its NAV per share. The discount has narrowed since my previous bullish FSK update in early April 2024....

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