OFS Capital: The Dividend Needs To Be Reduced

2025-06-01 08:15:53 ET

Summary

• OFS Capital's net investment income remains insufficient to support its high dividend, with NAV deterioration and declining earnings raising sustainability concerns.
• Despite a 30.8% discount to NAV, I see no meaningful catalyst for price recovery, especially given portfolio risks from tariffs and manufacturing exposure.
• Non-accrual rates, though improved, remain elevated versus peers, and management's outlook is cautious amid economic uncertainty and potential tariff impacts.
• I maintain my sell rating, expecting a dividend cut before 2025 ends, as OFS fails to generate enough new investment activity to offset earnings declines.

Overview

I've covered a ton of different Business Development Companies over the last quarter and I've noticed that many share similar weaknesses at the moment. When I previously covered OFS Capital ( OFS ), I issued a sell rating due to the insufficient net investment income and skepticism around its valuation. Since my last coverage, the price has slightly declined but has remained within a tight trading range. OFS recently reported its first quarterly earnings report for 2025, so I wanted to revisit this BDC to provide some updated insights into its current value proposition and outlook going forward....

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