Banking, finance, and taxes

Analysts Worry About Medley Earnings Versus Dividend

Jon C. Ogg

Published: February 10, 2016 11:20 am

Last Updated: January 13, 2020 1:21 pm

Medley Capital Corp. (NYSE: MCC) may have a bit of a medley of its own for investors to worry about. After posting a loss of about $39.2 million in its last quarter, its net loss was $0.70 per share and its adjusted earnings were $0.28 per share. Revenue was only $34 million as well.

Thomson First Call had its estimates at $0.31 in adjusted earnings share and just over $36 million in revenues.

Medley is not exactly the most followed business development company (BDC) out there, but it does have a serious implication for the sector — dividend coverage may get tough, and this is a sector where dividend yields can easily be north of 10%.

Medley invests in privately negotiated debt and equity securities of small and middle market companies. The stock is down over 30% in the past year and was last seen down by more than 22% so far just in 2016.

So, what do analysts think about Medley and its dividend situation?

Jefferies gave a cautious view here. The firm has a Hold rating and cut its price target down to $7.00 from $9.00. It was disappointed with earnings and said its earnings miss was attributable to an increase in non-accruals during the quarter. Still, it warned about the dividend:

We are updating our model for trends in the quarter and stepping to the sidelines on Medley Capital. We no longer expect Medley to be able to cover its dividend with its net operating income given emerging credit issues, which had been core to our prior Buy thesis.

Three other analyst calls were seen as follows:

• Citigroup downgraded Medley to Neutral from Buy.
• FBR Capital Markets downgraded it to Market Perform from Outperform and lowered its price target to $8.50 from $11.00.
• Ladenburg Thalmann already had downgraded Medley to Neutral from Buy.

Medley Capital shares were last seen down 6% at $5.60 on Wednesday. This was down around 25% from the $7.52 share price at the end of 2015. Shares also hit a new 52-week low of $4.57 in early bird trading, versus a 52-week high of $9.76.

Medley’s dividend had been $0.30 in the most recent quarters, down from a high of $0.37 in 2014 and 2013. A $0.30 dividend today would equate to a yield of 20%. The company said this week that it declared a dividend for the quarter ended December 31, 2015, of $0.30 per share. The dividend is said to be paid from earnings whose specific tax characteristics will be reported to stockholders on Form 1099 after the end of the calendar year.