{"id":16929,"date":"2025-06-19T09:06:08","date_gmt":"2025-06-19T09:06:08","guid":{"rendered":"https:\/\/finderica.com\/?p=16929"},"modified":"2025-06-19T09:06:08","modified_gmt":"2025-06-19T09:06:08","slug":"can-you-count-on-ofs-capitals-15-yield","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=16929","title":{"rendered":"Can You Count On OFS Capital\u2019s 15% Yield?"},"content":{"rendered":"

The dividends of business development companies, or BDCs, are often incredibly attractive.<\/p>\n

In order to avoid corporate taxes, these companies are required to give at least 90% of their taxable income back to shareholders in the form of dividend payouts. As a result, it\u2019s not uncommon to see their dividend yields nearing double digits.<\/p>\n

It\u2019s when you get into double-digit territory, though, that you should keep a cautious eye on your investments and look deeper into their financials to see whether there\u2019s anything awry.<\/p>\n

That\u2019s exactly what I\u2019m going to do today with the BDC OFS Capital Corp.<\/strong> (Nasdaq: OFS). Shout-out to Wealthy Retirement<\/em> reader Chris for suggesting the stock!<\/p>\n

OFS focuses on investing in mid-level companies to provide them with capital and structure for future growth. It does a good job diversifying across various sectors, including healthcare, tech, industrials, and more. You won\u2019t be seeing any big names in its portfolio, because its focus is mostly on privately held companies with more potential for growth.<\/p>\n

OFS\u2019 dividend yield is currently hovering around 15%, which immediately sent up a red flag in my mind. While it\u2019s not impossible to sustain a 15% dividend, it\u2019s definitely difficult, even for a BDC.<\/p>\n

The first thing we look at is the company\u2019s net investment income growth. Net investment income, or NII, is the measure of cash flow we use for BDCs, because it tells us how the company\u2019s investments are doing. In the case of OFS, net investment income has been all over the place over the past few years.<\/p>\n

There hasn\u2019t been a steady decline, but there also hasn\u2019t been consistent growth. The company\u2019s NII fell from $20.2 million to $16.7 million last year, and this year\u2019s projection of $17.3 million would still be lower than 2022\u2019s figure.<\/p>\n

\"Chart:<\/a><\/p>\n

As with real estate investment trusts and master limited partnerships, because of their requirement to pay out the majority of their income, we increase our dividend payout ratio standard for BDCs from 75% to 100%. Even with the higher threshold, though, OFS\u2019 payout ratio is too high. It paid out 109% of its net investment income to shareholders in 2024 and is expected to pay out nearly 113% in 2025.<\/p>\n

<\/a>Finally, OFS is no stranger to dividend cuts. Although it\u2019s made only one cut in the last 10 years, it was a pretty major step. In June 2020, the company slashed its dividend in half from $0.34 per share down to just $0.17.<\/p>\n

Although the payout is now back up to $0.34 per share, as it had been for the bulk of the 2010s, it took OFS over three years to increase it back up to that point.<\/p>\n

Taking all of this into account, we can see at least four major red flags being waved in front of our faces. There\u2019s a strong likelihood that we\u2019ll have a repeat of 2020 with a cut coming down the line.<\/p>\n

Dividend Safety Rating: F<\/strong><\/p>\n

\"Dividend<\/p>\n

What stock\u2019s dividend safety would you like us to analyze next? Leave the ticker in the comments section.<\/p>\n

You can also take a look to see whether we\u2019ve written about your favorite stock recently. Just click on the word \u201cSearch\u201d at the top right part of the Wealthy Retirement<\/em> homepage, type in the company name, and hit \u201cEnter.\u201d<\/p>\n

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.<\/p>\n

The post Can You Count On OFS Capital\u2019s 15% Yield? appeared first on Wealthy Retirement.<\/p>\n

Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The dividends of business development companies, or BDCs, are often incredibly attractive. In order to avoid corporate taxes, these companies are required to give at least 90% of their taxable income back to shareholders in the form of dividend payouts. As a result, it\u2019s not uncommon to see their dividend yields nearing double digits. It\u2019s<\/p>\n","protected":false},"author":2,"featured_media":16930,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[348],"tags":[6878,5603,6877,1006],"class_list":{"0":"post-16929","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-retirement","8":"tag-capitals","9":"tag-count","10":"tag-ofs","11":"tag-yield"},"_links":{"self":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/16929","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=16929"}],"version-history":[{"count":0,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/16929\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/media\/16930"}],"wp:attachment":[{"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16929"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16929"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16929"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}