FSCO: Top-Tier CEF That Delivers Capital Appreciation And Reliable Income

2025-05-29 08:25:14 ET

Summary

• FSCO offers both capital appreciation and a high 11% dividend yield, making it attractive for income-focused investors despite a shrinking discount to NAV.
• The fund's focus on senior secured first lien debt and selective new investments limits risk and supports consistent NAV and earnings growth.
• Strong net investment income consistently covers distributions, reducing reliance on realized gains and supporting multiple dividend increases since inception.
• While higher rates could increase defaults, FSCO's robust performance and prudent management justify maintaining my buy rating for reliable income and growth.

Overview

Credit investments continue to grow in popularity due to their ability to serve as a hedge against the volatility of traditional equities. Rather than focusing on price growth, credit investments typically emphasize providing returns through income. However, FS Credit Opportunities ( FSCO ) differentiates itself with its history of providing both capital appreciation and income. I previously covered FSCO and issued a buy rating due to its strong earnings and healthy dividend coverage. Since the time of my last coverage, the macro environment has changed and the fund has released an updated report, so I wanted to revisit FSCO to see how its value proposition may have changed since then....

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