OCSL - Oaktree Specialty Lending: Priced Attractively But Dividend May Be Threatened

2024-07-02 23:47:45 ET

Summary

• Oaktree Specialty Lending operates as a business development company that holds a focus on investing in middle market companies.
• Reduction in management fees to 1% is expected to increase net investment income per share by $0.15 annually. However, I believe this was done out of necessity to offset underperformance.
• Despite strong dividend growth history, caution is advised due to low coverage rate and lack of NAV growth, making OCSL a hold.
• Their debt investments are diverse in nature, but there seems to be a majority emphasis on application software companies.

Overview

I previously covered Oaktree Specialty Lending ( OCSL ) back in March and rated it as a hold due to its price trading at a premium to net asset value and its declining net investment income. However, I wanted to reassess this business development company and provide a more specific time range in regard to its performance. OCSL actually didn't publicly exist until the tail end of 2017 because prior to this the portfolio was managed by Fifth Street. Therefore, I will no longer be referencing its past price performance prior to 2017. When looking at the price and total return performance starting in 2017, we can see positive price growth and a total return over 100%....

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