Golub Capital: Healthy And Well-Covered 11% Dividend

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Golub Capital: Healthy And Well-Covered 11% Dividend

seekingalpha10-13

Golub Capital BDC trades at a slight discount to NAV despite strong dividend coverage and below-average leverage.Q3 2024 earnings report shows GBDC's non-accruals remain low, with leverage decreasing ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nGolub Capital: Healthy And Well-Covered 11% Dividend\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-13 14:35 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4726413-golub-capital-healthy-and-well-covered-11-percent-dividend><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Golub Capital BDC trades at a slight discount to NAV despite strong dividend coverage and below-average leverage.Q3 2024 earnings report shows GBDC's non-accruals remain low, with leverage decreasing ...</p>\n\n<a href=\"https://seekingalpha.com/article/4726413-golub-capital-healthy-and-well-covered-11-percent-dividend\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"GBDC","symbol_name":"Golub Capital BDC","start_time":0,"source_url":"https://seekingalpha.com/article/4726413-golub-capital-healthy-and-well-covered-11-percent-dividend","article_id":"2475281343","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1292706054/image_1292706054.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2475281343","pubTimestamp":1728801300,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Golub Capital BDC trades at a slight discount to NAV despite strong dividend coverage and below-average leverage.Q3 2024 earnings report shows GBDC's non-accruals remain low, with leverage decreasing ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"GBDC":"Golub Capital BDC","BK4135":"资产管理与托管银行"},"translate_title":"Golub Capital：健康且覆盖良好的11%股息","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"GBDC":0.9},"content_text":"Golub Capital BDC trades at a slight discount to NAV despite strong dividend coverage and below-average leverage.Q3 2024 earnings report shows GBDC's non-accruals remain low, with leverage decreasing to 1.05x debt-to-equity.Adjusted NII per share significantly exceeds quarterly distribution, ensuring a robust 123% coverage.Given this and the favorable P/NAV level, GBDC remains a solid BDC dividend income pick, even though the upcoming financial quarter is unlikely to bring positive surprises.   Hiroshi Watanabe I have been actively covering Golub Capital BDC (NASDAQ:GBDC) - the fifth largest BDC in terms of the NAV size - since late 2023, when my initial thesis was issued with a clear recommendation of a buy rating. Looking at the YTD total performance chart below, we can see that GBDC has performed almost exactly in line with the broader BDC market, which itself has registered somewhat acceptable returns. YCharts Yet, what is interesting is that even though GBDC carries so huge asset base, has one of the strongest dividend coverage ratios and leverage below sector average, it, currently, trades at a slight discount to NAV. Given these characteristics, I would expect the opposite situation - a slight premium over NAV. Let's now assess the previous earnings report - Q3, 2024 (fiscal quarter for GBDC; covering Q2, 2024 calendar period) - and try to determine whether the case remains attractive, especially in the light of the prevailing sector-wide headwinds. Thesis review In Q3, 2024, the adjusted NII per share landed at $0.48 per share, which is below the result achieved in the previous quarter ($0.51 per share). Compared to the same quarter last year, the performance looks better - i.e., adjusted NII ticking higher by $0.04 per share. However, I would pay more attention to the quarter-on-quarter comparison as, in general, there is not that much of a seasonality pattern in the BDC business. Now, there are several reasons why the result declined by $0.03 per share compared to Q2, 2024. First and foremost, GBDC recognized two notable write-downs on Imperial Optical and Pluralsight that not only lead to significant net realized and unrealized loss position of $0.17 per share, but also decreased the relevant asset base from which interest income could be recognized. Second, the non-accruals increased slightly to 1% from 90 basis points in the prior quarter. Even though there was this uptick of ~ 10 basis points, the total level of non-accruals still could be deemed significantly below the sector average of ~ 2.7%. Third, after the merger of two related Golub Capital private credit funds, the leverage dropped even further, reaching debt to equity of 1.05x, which is well-below the sector average of 1.16x. The consequence of this, however, is that GBDC does not carry the same degree of spread magnification as in the Q2, 2024 period, thereby introducing tangible headwinds on the adjusted NII generation front. Finally, the weighted average net investment spreads continued to decline, going from 7.0% in Q2, 2024 to 5.8% in Q3, 2024. As we can see in the chart below, most of this process was driven by the declining investment income yields that remained subject to the overalls sector-wide headwinds of tightening spreads (due to subdued M&A activity and increased supply of private credit actors). GBDC Q3, 2024 Earnings Presentation To combat these negatives, the Management decided to waive the quarterly incentive fee of $0.07 per share, which definitely came in handy for shielding the NAV base and dividend coverage levels. Here we have to also factor in the benefits stemming from a permanent incentive free rate reduction from 20% to 15%, which fully kicked in on June 3, 2024 (post-merger). Furthermore, if we look at the underlying portfolio quality, we will see a quite robust picture with the necessary element of defense in place. For example, after the merger, GBDC now enjoys first lien exposure of 93% with the remaining chunk of assets being distributed across mostly equity positions that should allow the BDC to more successfully participate in opening M&A markets (e.g., carrying out equity exits, which usually result in notable realized gains). Plus, the weighted average loan-to-value of the portfolio ending Q3, 2024 stood at 45%, which is one of the healthiest levels in the sector. Similarly, the exposures in rating categories four and five (indicative of well-performing assets) expanded to 89.2% from 87.2% in the prior quarter. On top of this, in the recent earnings call the comment by David Golub - Chief Executive Officer - provided a decent color on how we should think of GBDC's future capital allocation tactics: Right now, we're thinking that a good target for GBDC from a leverage standpoint is about 1.15x debt-to-equity, which is a bit higher than where we're running now. But we're not going to be in a wild rush to get to that 1.15x unless we determine that there are attractive new loan opportunities out there that merit our committing to grow the balance sheet. So right now, as I mentioned in our prepared remarks, we're not seeing a dramatic surge in deal activity. We're seeing a continuity of trend from Q1 and Q2. So, we're going to be picky, and we're going to take our time, and we're going to aim to have leverage increase at GBDC over the course of the coming period not at the expense of quality. What this means is that we will likely see GBDC maintaining a healthy level of leverage and not assuming meaningful incremental borrowings to fund the expansion plans at the expense of portfolio quality. It also implies that the adjusted NII per share is most probably to remain at the same level (or increase or even decrease slightly) until the M&A markets truly come back in vogue. In the meantime, GBDC remains well-positioned in terms of the dividend coverage - e.g., the Q3, 2024 adjusted NII per share considerably exceeded the quarterly base dividend amount, resulting in a base dividend coverage of 123%. The bottom line Considering the financial dynamics above, it is clear that GBDC is exposed to the same pressures as most other larger BDCs such as Ares Capital (ARCC) and Blackstone Secured Lending Fund (BXSL). For example, the spread compression and shallow M&A activity are imposing a more challenging environment for GBDC to grow its adjusted NII generation. This quarter was specifically negative due to two larger write-downs, which do not signal systematic quality issues at the portfolio-level, since the credit statistics remain best-in class and the rate of change continues to be positive in relation to internal risk ratings. Going forward, there is definitely an upside potential from reduced fees, ample financial capacity and a meaningful exposure to equity investment, which could be successfully monetized when the M&A markets become active. However, the upcoming and Q4, 2024 (calendar period, but for GBDC it is Q1, 2025) quarterly earnings are, in my opinion, unlikely to result in meaningfully growing adjusted NII per share results due to truly subdued M&A activity.  Yet, meanwhile, the base dividend coverage is strong, which in combination of very defensive portfolio properties make GBDC a buy.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"hasMoreComments":false,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}