I’ve a tender spot in my coronary heart for PennantPark Funding (NYSE: PNNT).
A very long time in the past, after I was in my 20s, I used to be taking the prepare residence and observed that somebody had left an funding publication behind. I don’t keep in mind which publication it was (perhaps it was from one in every of my predecessors right here at The Oxford Membership), but it surely featured an article on PennantPark.
I don’t recall the main points of the article, however I used to be enticed by the inventory’s excessive yield and purchased some shares. It was one of many first shares I ever purchased. I offered it a couple of years later at round breakeven.
Immediately, the inventory yields an enormous 12.3% and pays a $0.07 per share month-to-month dividend. Let’s have a look to see whether or not traders can depend on that sturdy dividend sooner or later.
PennantPark points loans and offers occasional fairness financing to middle-market corporations, that are companies which are valued at between $10 million and $1 billion.
Its investments embrace…
- American Insulated Glass, a 34-year-old firm with places of work in seven states
- Comodo, a supplier of safe sockets layer (SSL) certificates, which permit web sites to be safer
- Ox Engineered Merchandise, a Northville, Michigan-based supplier of froth, sheathing and wrap to builders.
PennantPark additionally has an excellent mortgage to Cano Well being, an operator of main healthcare clinics in South Florida that filed for Chapter 11 chapter safety final month.
PennantPark didn’t point out or allude to Cano’s state of affairs on its convention name for the primary quarter of fiscal 2024 or in its earnings launch that was issued three days after the chapter submitting. I’m not too involved about it, although. Cano represents solely a really small portion of the portfolio.
As a result of PennantPark is a lender, we take a look at internet curiosity revenue (NII) to find out whether or not the corporate generates sufficient money to pay its dividend.
Final 12 months, NII surged from $59 million to $99 million, and this 12 months, it’s forecast to develop one other 13% to $112 million.
In the meantime, the corporate paid out $49.6 million in dividends final 12 months for a payout ratio of simply 50%. This 12 months, the payout ratio is predicted to drop to 49%, so PennantPark can nonetheless simply afford its dividend.
Right here’s the place it will get difficult, although. The corporate has minimize the dividend 3 times previously 10 years, and the dividend continues to be beneath the place it was a decade in the past. That’s one thing Security Internet doesn’t wish to see.
The corporate can simply afford its dividend proper now. However PennantPark has made it very clear it would minimize the payout when it must. For that purpose alone, this dividend can’t be thought-about protected.
Dividend Security Score: D
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