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Instant Analysis: Triangle Capital Corporation Slashes its Dividend

By Jordan Wathen - May 4, 2016 at 6:47PM

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The lower middle-market lender and equity investor slashed its quarterly dividend by nearly 17%.

What's happening?
Small business financier Triangle Capital Corporation (NYSE: TCAP) announced that it would slash its quarterly dividend from $0.54 per share to $0.45 per share. This is the first-ever decrease in the company's quarterly dividend since the firm went public in 2007. 

Does it matter?
Given that business development companies like Triangle Capital are all about yield, I'd certainly say so.

Note that Triangle Capital's dividend policy is to pay a dividend income based on recurring income, and distribute any non-recurring income from capital gains as a supplemental dividend. A reduction in its routine quarterly dividend is a strong signal the company's expects weaker earnings power going forward.

Date

Quarterly dividend per share

2015

$0.59 (included $0.05 of supplemental dividends)

2016 (Q1 only)

$0.54

2016 (so far, only Q2)

$0.45

Source: Google Finance, Company Investor Relations

The company announced that the dividend cut had to do with declining spread income it earned on its debt investments. "Since 2013, the market pricing for our type of investments has changed from 14%-15% to 11%-13%," noted company President and CEO, Ashton Poole, in a press release.

Triangle Capital's routine earnings power has been in decline for some time. The company reported earning just $0.29 per share in operating income in the first quarter of 2016, or $0.45 per share when adjusted for one-time retirement benefits paid to former CEO Garland Tucker.

Note that results were also negatively affected by the reversal of about $0.04 per share in dividend income previously recorded in 2015. Add that back to adjusted net investment income of $0.45 per share and it appears that Triangle Capital's steady-state earnings power is closer to about $0.49 per share, per quarter. The first quarter is seasonally light for origination volume, and thus a good representation of Triangle Capital's recurring earnings power.

Resetting the dividend is unfortunate, but necessary. The company's balance sheet shows about $7.6 million (about $0.22 per share) of investment income earned in excess of distributions at the end of the first quarter, down significantly from $16.1 million last quarter.

This dividend cut should help the company build a bigger buffer for future distributions, but it seems likely the market will show its disappointment and reprice the stock for the new dividend in Thursday's trading.

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