Trinity Capital Stock: Market Volatility Makes 15.8%-Yielding Alternative Bank Stock a No-Brainer
March 14, 2023
TRIN Stock Tumbles 20% on SVB Contagion Fears
Knee-jerk investors have put alternative bank stocks like Trinity Capital Inc (NASDAQ:TRIN) in an attractive trading range.
Financial service stocks have been cratering since SVB Financial Group (NYSE:SIVB)—more commonly known as Silicon Valley Bank—announced on March 11 that it sold securities at a loss in order to manage lower deposit levels and higher interest rates. While the sale only affected customers who had money in the bank, many investors feared that Silicon Valley Bank’s underlying weaknesses could undermine the bottom lines of other banks.
Sure, President Joe Biden stepped in and said that depositors of Silicon Valley Bank would be made whole. The same holds true for customers of New York’s Signature Bank (NASDAQ:SBNY), another regional financial institution that was shut down by regulators.
Despite Biden’s assurances, regional bank stocks tumbled on March 13, with the contagion sweeping across the entire global banking industry. Even the shares of banking giants like Morgan Stanley (NYSE:MS) took a hit. This resulted in the SPDR S&P Regional Banking ETF (NYSEARCA:KRE) falling by 16% on March 13. That was the exchange-traded fund’s largest one-day drop since December 2008.
This was, of course, bad news for bank stockholders, but the dramatic overreaction and share-price drops have made some bank stocks too good to ignore. This includes Trinity Capital Inc, a business development company (BDC) that provides term loans and equipment financing to growth-stage companies. (Source: “Fourth Quarter 2022 Investor Presentation,” Trinity Capital Inc, last accessed March 13, 2023.)
Growth-stage companies are defined as having active equity sponsors, annual revenues of up to $100.0 million, and being past early-stage development risks.
Trinity Capital stock only went public in early 2021, but the company has been around for 15 years. It has a successful track record of serving a multibillion-dollar, under-served, niche market. Since its inception in January 2008, Trinity Capital has made 284 investments and 159 exits.
As of December 31, 2022,Trinity Capital Inc’s investment portfolio had an aggregate fair value of about $1.1 billion and comprised approximately $802.9 million in secured loans, $246.0 million in equipment financings, and $45.6 million in equity and warrants across 116 portfolio companies.
Trinity Capital’s partner portfolio consists of companies in the chemical and fuel; clean technology; commercial services; consumer and retail; energy and efficiency; health-care; Internet of Things (IoT); semiconductor and hardware; software; and other industries. The company’s partners currently include Axiom Space, Inc., GrubMarket, Impossible Foods Inc, and Nexus Systems Group Inc. (Source: “Meet Our Partners,” Trinity Capital Inc, last accessed March 13, 2023.)
On the sale side, Trinity Capital was an early investor in Lucid Group Inc (NASDAQ:LCID) and Matterport Inc (NASDAQ:MTTR). In February 2022, the company received $59.8 million in net proceeds from the sale of its equity investments in Lucid and Matterport. (Source: “Trinity Capital Inc. to Receive $59.8 Million in Net Proceeds From the Sale of Certain Equity Investments,” Trinity Capital Inc, February 2, 2022.)
Trinity Capital Inc Reports “Year of Exceptional Growth”
For the fourth quarter of 2022, Trinity Capital announced that its total investment income jumped by 75.8% year-over-year to $41.5 million. Its net investment income increased by 103.8% to $21.6 million, or $0.62 per share. (Source: “Trinity Capital Inc. Reports Fourth Quarter and Full Year 2022 Financial Results,” Trinity Capital Inc, March 2, 2023.)
In the full year, the company’s total investment income increased by 77.0% to $145.5 million. Meanwhile, its net investment income climbed by 83.6% to $71.6 million, or $2.26 per share.
Steve Brown, Trinity Capital Inc’s chairman and CEO, commented, “Trinity had a year of exceptional growth, furthering its momentum in 2022. Our operating performance generated a record $975.5 million in new commitments and fundings of $631.2 million, leading to record total investment income of $145.5 million and net investment income of $71.6 million.” (Source: Ibid.)
Trinity Capital Stock’s Dividend Hiked for 8th Straight Quarter
Thanks to Trinity Capital Inc’s outstanding financial performance, it has been able to increase its dividends for eight consecutive quarters. Its gross dividends in 2022 were $2.33 per share, for a current ultra-high-yield payout of 15.8%.
During the fourth quarter of 2022, management announced a quarterly dividend of $0.61, which consisted of a regular dividend of $0.46 per share and a supplemental dividend of $0.15 per share. The company’s net investment income covered the regular dividend by 135%. Moreover, Trinity Capital Inc ended the year with $60.4 million, or $1.73 per share, of earnings spillover.
The company has a rock-solid balance sheet and enviable investment portfolio, but TRIN stock’s price has been pilloried due to broad-based fears infecting the financial service sector. Before its March 11 sell-off, the stock was actually up by roughly 30% year-to-date. Thanks to the recent sell-off, Trinity Capital stock’s year-to-date gain has been reduced to just 2.9%. Over a period of five days, it tumbled by 20.3%.
Keep in mind, Trinity Capital doesn’t hold any deposits or any securities in—nor maintain any accounts or credit facilities with—Silicon Valley Bank.
Just days before the Silicon Valley Bank mayhem, analysts at UBS Group AG (NYSE:UBS) adjusted their share-price target for TRIN stock from $13.00 to $16.00. In early March, analysts at B. Riley Financial Inc (NASDAQ:RILY) lifted their target for Trinity Capital stock from $13.00 to $14.00 per share after Trinity Capital Inc reported better-than-expected fourth-quarter earnings. The two analysts point to potential upside for TRIN stock in the range of 14.6% to 41.0%.
Chart courtesy of StockCharts.com
The Lowdown on Trinity Capital Inc
Trinity Capital stock has been kicked off a cliff, but that had nothing to do with what’s been going on at the company. It was a result of investor fears related to the recent fallout at Silicon Valley Bank, and what it means for the broader financial service sector.
By all accounts, Trinity Capital Inc is on a strong footing, and the recent sell-off has put TRIN stock in a more compelling trading range. In the words of Kyle Brown, the company’s president and chief investment officer, “Trinity is operating on all cylinders. We have a healthy portfolio, solid balance sheet and ample liquidity…” (Source: Trinity Capital Inc, March 2, 2023, op. cit.)
The company’s successful business performance has allowed it to increase its dividend for eight straight quarters and has resulted in earnings spillover of $1.73 per share. If you ignore the white noise, you’ll see that the outlook for Trinity Capital Inc is robust. This should be a boon for Trinity Capital stock’s dividends and share price.
