Why TRIN Stock Has Climbed Over the Past Year
Yes, interest rates are going to start coming down, but most analysts believe the Federal Reserve will leave rates high for longer than initially thought. That’s not a big surprise, since the U.S. economy is doing so well, and lowering rates faster than necessary could reignite inflation.
The fact of the matter is, even after an unprecedented 11 interest rate hikes, the economy remains resilient. If anything, the aggressive rate hikes have proven that the U.S. economy is strong and may be able to handle higher borrowing costs.
Because of this, it’s still a great time to look at companies that benefit from high interest rates and pay big distributions. That includes business development companies (BDCs) like Trinity Capital Inc (NASDAQ:TRIN).
Why?
Most BDCs (also known as alternative banks) have loan portfolios made up of senior loans with variable interest rates. U.S. interest rates in the range of 5.25% to 5.5% (the highest since 2001) have been wonderful for BDCs.
Better-managed BDCs like Trinity Capital have rewarded buy-and-hold shareholders with reliable dividends and a growing share price.
About Trinity Capital Inc
Trinity Capital provides term loans and equipment financing to growth-stage companies. (Source: “Fourth Quarter 2023 Investor Presentation,” Trinity Capital Inc, last accessed March 26, 2024.)
Trinity Capital has defined a growth-stage company as a business that has active equity sponsors, earns annual revenues of up to $100.0 million, and is past its risky early-development stage. (Source: “Prospectus Supplement,” Trinity Capital Inc, August 19, 2021.)
Trinity Capital has a successful track record of serving a multibillion-dollar, under-served, niche market. Since its inception in January 2008, the company has made 317 investments and 185 exits. (Source: “Fourth Quarter 2023 Investor Presentation,” Trinity Capital Inc, op. cit.)
As of the fourth quarter of 2023, Trinity Capital’s investment portfolio had an aggregate fair value of about $1.3 billion. (Source: “Trinity Capital Inc. Reports Fourth Quarter And Full Year 2023 Financial Results,” Trinity Capital Inc, March 6, 2024.)
In that period, its portfolio comprised approximately $885.3 million worth of secured loans, $336.8 million worth of equipment financings, and $53.1 million worth of equity and warrants across 120 companies.
The company’s debt portfolio is made up of 76.8% first-lien loans, 23.2% second-lien loans, and 69.0% floating-rate debt.
Trinity Capital’s partner portfolio consists of companies that operate in sectors including aviation and aerospace; commercial services; consumer and retail; energy and hardware; financial services; information technology (IT); life sciences and health care; semiconductors; and software. (Source: “Meet Our Partners,” Trinity Capital Inc, last accessed March 26, 2024.)
Trinity Capital has backed some of the world’s most innovative companies. Its current partner portfolio includes Axiom Space, Inc., GrubMarket, Impossible Foods Inc., and Nexus Systems Group Inc. Three companies that Trinity Capital was an early investor in are Lucid Group Inc (NASDAQ:LCID), Matterport Inc (NASDAQ:MTTR), and Maxwell Lender Solutions, Inc.
Record-High Q4 & 2023 Net Investment Income
For the fourth quarter of 2023, Trinity Capital announced that its total investment income jumped by 15.2% year-over-year to a record-high $47.8 million. Its net investment income (NII) grew in the quarter by 15.9% year-over-year to a record-high $25.1 million, or $0.57 per share. (Source: “Trinity Capital Inc. Reports Fourth Quarter And Full Year 2023 Financial Results,” Trinity Capital Inc, March 6, 2024.)
Also for the fourth quarter, Trinity Capital reported record-high total gross investment commitments of $340.7 million and record-high total gross investments funded of $267.4 million, which included $220.0 million across six new portfolio companies.
For the full year, the company reported that its total investment income increased by 25% to a record-high $181.9 million, while its NII increased by 25.6% to a record-high $89.9 million, or $2.31 per share. Its total gross investments funded inched up in 2023 by 1.7% to a record-high $641.8 million.
Management Increased Base Dividend for 13 Straight Quarters
Commenting on the company’s 2023 financial results, Kyle Brown, Trinity Capital Inc’s CEO, said, “Our strong performance has allowed us to increase our regular dividend for twelve straight quarters, resulting in distributions of $2.04 per share to our shareholders in 2023.” (Source: Ibid.)
On March 14, Trinity Capital increased its regular dividend for the 13th consecutive quarter. The company’s board declared a cash dividend of $0.51 per share. (Source: “Distributions,” Trinity Capital Inc, last accessed March 26, 2024.)
That translates to a big yield of 13.55% (as of this writing).
Moreover, it’s not uncommon for Trinity Capital Inc to also declare supplemental dividends.
For instance, on July 14, 2023, the company paid a cash dividend of $0.53 per share, comprising a regular dividend of $0.48 and a special dividend of $0.05 per share. Then, on October 13, it paid a cash dividend of $0.54 per share. That included a regular dividend of $0.49 per share and a supplemental dividend of $0.05 per share.
Trinity Capital Stock Up 28% Over Last 12 Months
Typically, nosebleed dividend yields only accompany depressed stock prices. That’s because share prices and dividend yield are inversely related: as a stock’s price goes up, its yield decreases (and vice versa).
Fortunately, this isn’t the case with Trinity Capital Inc’s high yield.
On December 19, 2023, TRIN stock hit a record intraday high of $15.44 per share. It gave up some ground in the opening weeks of January 2024, but it has been climbing since then. As of this writing, Trinity Capital stock has rallied by 8.8% since the start of February. Over the same time period, the S&P 500 has climbed by 7.9%.
Trading at $15.10 per share, TRIN stock is within reach of its all-time intraday high.
Chart courtesy of StockCharts.com
Wall Street analysts are pretty confident that Trinity Capital stock will hit fresh highs over the coming quarters. They’ve provided a median 12-month share-price forecast of $15.50 and a high forecast of $16.50. This points to potential gains of 2.5% to 9.0%.
The Lowdown on Trinity Capital Inc
Trinity Capital is a fabulous BDC that had a “tremendous” 2023 that was marked by record-high fundings and investment income, along with ongoing growth in its investment portfolio. The company expects its off-balance sheet growth strategies to result in additional financial growth in 2024.
Again, Trinity Capital Inc’s excellent financial performance has allowed the company to increase its regular dividends for 13 consecutive quarters and occasionally pay special dividends.
The tremendous financial results are also why TRIN stock’s price has been able to climb back up to record-high levels—and why Wall Street analysts are expecting it to hit new record highs over the coming quarters.