SCM - Stellus Capital: High Monthly Income But Trades At A Premium

2024-05-08 11:56:23 ET

Summary

• Stellus Capital Investment Corp (SCM) is a BDC that has benefited from the higher interest rate environment, growing earnings and rewarding shareholders with supplemental dividends.
• SCM focuses on middle market companies and invests in senior secured debt, offering capital protection.
• SCM's portfolio is diversified across various industries, and the majority of investments are sponsored backed and comprised of floating rate debt.
• The price currently trades at a premium to NAV that is above its pre-pandemic level. Therefore, entry here is not attractive.

Overview

Business Development Companies continue to be one of the best ways to benefit from the higher interest rate environment due to their structure of floating rate debt. Stellus Capital Investment Corp ( SCM ) is one of the BDCs that have been able to benefit from the current environment by growing their earnings and rewarding shareholder with dividend raises and special distributions. SCM's appeal lies in its high starting yield of 11.3% and the distributions that are issued on a monthly basis. Comparing SCM against monthly paying peers such as Main Street Capital ( MAIN ), Gladstone Investment ( GAIN ), and Prospect Capital ( PSEC ), we can see that SCM is a middle of the pack performer....

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