Allied Capital's results this quarter were still troubling. Net investment income excluding realized gains was flat year-over-year at $0.33 a share, yet the dividend payment was $0.62 a share. The difference has to be made up through portfolio exits and/or income carryovers, among other things -- not a particularly ideal situation for investors, as it raises questions about the sustainability of the dividend.
Furthermore, while management has been aware of this problem for some time, it has had difficultly fixing the issue. No doubt, poor growth in NAV (read: portfolio results) does not help -- it grew a pathetic $0.21 a share this quarter, to $19.38 from $19.17 year over year. Therefore, investors should be wary when viewing Allied's nearly 8% yield. While it is still the range that BDCs like Apollo Investment
While BDCs like Allied and American have an excellent investing track record (American has historically had fewer charge-offs than traditional banks), investments still go sour. This is why Allied's investment in Krispy Kreme
For Income Investor fans who seek dividend appreciation and have some appetite for risk, the BDC sector is worthy of further due diligence. This oft-maligned sector, which includes Rule Breakers pick Harris and Harris
For more BDC coverage at the Fool:
- American Capital: An Investing Gorilla
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- TINY Investment Inches Closer to Payoff
Fool contributor Stephen Ellis does not own shares in any companies mentioned. You can view the stocks he owns or check out his 99th-percentile ranking in Motley Fool CAPS, the Fool's new stock-rating community. The Motley Fool has a disclosure policy.