Prospects Elsewhere for BDC Dividends?
Prospect Capital Corp. (NASDAQ: PSEC) is one of the most well-known business development companies (BDCs), and it cut its payout in December. The company also suspended its at-the-market equity issuances for the indefinite future. Prospect said at the time that its concentration in the energy sector was only 5.1%, and starting in 2015 the monthly payouts would drop to 0.08333 cents per share. The BDC is trying to work with less risk and a focus on higher earnings quality via more first lien loans and accepting lower interest rates.
Being in the business development segment can also come with volatility around earnings and payouts through business cycles. Prospect simultaneously said that it expects to declare its May, June, July and August 2015 monthly distributions in May 2015, and it indicated that its current lower payouts would just be the minimum required. Does that mean that the payouts could rise again? Prospect’s prior payouts had been closer to $0.11 per share — and the new yield still carries a whopping 11.5% yield equivalent. With shares at $8.67, Prospect’s 52-week range is $8.02 to $11.10. It signaled that its net asset value per share on December 31, 2014 stood at $10.35 per share.
SeaDrill’s Dividend Gets Drilled
SeaDrill Ltd. (NYSE: SDRL) is an offshore drilling contractor targeting the oil and gas sector. What stood out here was that this was the first of the larger offshore drillers to enter the confessional booth by suspending its dividend payments. Shares were above $20 in late November, and when it slashed the payout shares fell to under $15 in short order — and now shares were recently down under $12. With a 52-week range of $9.18 to $40.44, it still has a market cap of about $5.8 billion.
When SeaDrill suspended its dividend in November, the claimed intention was to focus on creating value opportunities and to reduce debt. Analysts and investors were worried about this outfit having a dividend risk because the prior two quarterly payouts were up at $1.00. That would have been a magic 20% yield had it been maintained. Amazingly, analysts still see positive earnings for 2015. Does that mean that the payout will resume as soon as project fulfillment allows for better earnings?
Like Transocean Could Pay a 15% Yield
Transocean Ltd. (NYSE: RIG) had a payout that was so high it had no choice but to be cut. The company is a global player in the offshore contract drilling services for oil and gas wells, and the drop in energy prices has hurt big time. Can you imagine when investors screen for high-yield stocks and see a yield of over 15%? That had been the case up until mid-February.
Transocean had been expected to lower its dividend for some time, but the new $0.60 payout sounded OK on the surface, versus a prior $0.75 payout, but the new payout is over four installments. That really means the payout will be $0.15 per quarter, a drop of 80% to its quarterly payout. This was also said to be out of additional paid-in capital. What the company may have signaled to investors, without formally stating it, is that there are still risks ahead. Its CEO departure (or ouster) was not taken as a good sign of a solid outfit. Shares were close to $16 of late, against a 52-week range of $14.50 to $46.12. Does it matter this was way over $100 during the 2008 oil bubble?
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