Gladstone Investment Corp. (GAIN:NASDAQ) (12.07, 7.5% yield) is "cranking along at a very good pace," in the words of CEO David Gladstone. Although there was a small decline in reported net investment income in the latest quarter, this was entirely due to the accounting treatment of accrued incentive fees and on a year-on-year basis, NII increased. The company also has undistributed income and net gains amounting to US$0.47 per share, providing a cushion for the distribution.
The value of the portfolio (NAV) increased, up US$0.72 to $11.57 from the prior quarter, and up 11% year-on-year. The balance sheet remains solid, with low leverage. A new preferred stock issue has enabled the company to redeem early a previous preferred issue. And the company has amended its credit facility, increasing its size to $200 million, with the possibility on certain conditions of increasing to $300 million), as well as extending the term and reducing the pricing.
Dividend increased again
Lastly, the company recently raised its quarterly dividend, to US$0.80 (from US$0.78). This is on top of the semiannual supplemental distributions (currently US$0.06) which come primarily from equity gains. (Be alert to financial sites that include the supplemental distributions in last year's yield figure but exclude them from the indicated—next year's—yield. Thus, Bloomberg shows a decline in the yield from 7.5% last year to an expected 6.6% next, which is not an accurate reflection of reality.)
We would hold, especially if you want long-term income. But we are not buying more now, given the stock is trading above NAV (with the concomitant risk of an equity raise) as well as the fact that the stock has moved appreciably this year—from a January low of $9.25—outperforming the average BDC stock. We will look for pullbacks to buy more.
Global Trade War Threatens Hutchison
Hutchison Port Holdings Trust (HPHT:Singapore) (US$0.25) has lowered its distribution guidance based only partly on anticipated lower throughput due to the tariff battle between the U.S. and China. The company also has long-scheduled higher capital spending requirements ahead.
In the latest period, cargoes from China to the U.S. actually increased, by 3%, but the risk is that tariffs cut cargoes going forward. U.S. bound cargoes represent between 30% and 40% of Hutchison's total cargoes.
At the current price, however, the shares are oversold. Even with the expected cut in the distribution, the shares would yield over 8%. Of course, the risk exists of a sharper-than-expected decline in global trade and additional cuts in the distribution. We are holding. It can also be bought as part of an overall income portfolio, but we would not go too heavily into the shares until the tariff situation is clearer.[NLINSERT]
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Gladstone. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Gladstone, Hutchison Port. I determined which companies would be included in this article based on my research and understanding of the sector.
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