Monroe Capital Corp: 12%-Yielder Up 22% in 2024
November 1, 2024
Monroe Capital Stock Trading at Record Levels
Even in a lower interest rate environment, the outlook for business development companies (BDCs) like Monroe Capital Corp (NASDAQ:MRCC) remains solid.
Interest rates are coming down, but they’re still expected to remain well above pre-pandemic levels. The days of near-zero interest rates are pretty much over. And, because the U.S. economy is going to avoid a recession and achieve a soft landing, BDCs are expected to start issuing more debt.
This continues to be great news for BDCs, or what we like to call “Alternative Banks” here at Income Investors.
BDCs are like traditional financial institutions but they invest in privately owned, small and medium-sized companies that get overlooked by the big banks. Like a venture capital or private equity fund, a BDC generates income when the companies it invests in are sold.
A lot of well-known companies have benefitted from the help of BDCs, including Facebook, YouTube, and Etsy.
BDCs don’t just supply much-needed capital to private businesses; they also provide income investors with frothy distributions. That’s because they have to legally distribute at least 90% of their taxable income to shareholders in the form of a dividend.
About Monroe Capital Corp
Monroe Capital Corp is an Alternative Bank that provides senior, unitranche, junior secured, and subordinated debt financing and minority equity investments primarily to lower-middle market companies in the U.S. and Canada. (Source: “Investor Presentation, Q1 2024,” Monroe Capital Corp, last accessed October 22, 2024.)
The BDC holds debt equity investments in 94 portfolio companies with a total fair value of $485.8 million. The average loan investment size per company is around $5.0 million. First-lien loans make up 81.1% of Monroe’s portfolio.
The BDC’s portfolio is diversified across industries such as real estate, health care & pharmaceuticals, business services, high-tech, media, and banking.
Net Investment Income Up 20%
For the second quarter ended June 30, 2024, Monroe Capital announced that net investment income advanced 20% on a sequential basis to $6.5 million, or $0.30 per share. (Source: “Monroe Capital Corporation BDC Announces Second Quarter 2024 Results,” Monroe Capital Corp, August 7, 2024.)
The company’s adjusted net investment income grew 22% over the first quarter to $6.6 million, or $0.31 per share. Total investment income totaled $15.6 million, versus $15.2 million in the first quarter. Net asset value (NAV) slipped by $0.10 per share or 1.1%, to $199.3 million, or $9.20 per share.
Declares 17th Consecutive Quarterly Dividend of $0.25/Share
Commenting on the second-quarter results, Theodore L. Koenig, Monroe’s chief executive officer, said, “We are pleased to announce a $0.25 per share dividend for the 17th consecutive quarter.”
“Our predominantly first lien portfolio continues to offer attractive risk-adjusted returns to our shareholders with a 14.0% annualized dividend yield. Our focus remains on maintaining the portfolio’s asset quality in the face of a higher-for-longer interest rate environment and delivering value for stockholders,” Koenig added.
The company’s third-quarter cash dividend of $0.25 per share translates into an annual distribution of $1.00 per share, for a forward yield of 12.36%. That ultra-high dividend yield is not an anomaly or a result of a crashing share price…quite the opposite. The five-year average dividend yield is 12.79%.
MRCC Shares Hit New Record High
MRCC stock has been trending steadily higher since November 2023; that’s when the Federal Reserve announced that it was done raising interest rates and rate cuts were on the horizon.
Since the start of November 2023, MRCC stock has rallied 31.5%. The stock actually hit a new record high of $8.41 on October 17, continuing to trade near that level. As of this writing (October 22), MRCC is also up 22% year to date and 24.5% year over year.
These are robust gains, but Wall Street thinks Monroe Capital stock will hit fresh highs over the coming quarters, with analysts providing a 12-month share price target of $9.00. This points to potential gains of 15.4%.
Chart courtesy of StockCharts.com
The Lowdown on Monroe Capital Corp
Monroe Capital Corp is a great BDC with a diversified portfolio anchored primarily by first-lien senior secured loans. Thanks to its strong balance sheet and reliable income stream, Monroe Capital has been able to provide investors with a reliable, ultra-high-yield dividend for years. MRCC stock, which has been on the move since November 2023, is expected to hit additional fresh highs over the coming quarters.
