Month-to-month Dividend Inventory In Focus: Stellus Capital – Positive Dividend

Up to date on April eleventh, 2025 by Nathan Parsh

Because the saying goes, if one thing seems too good to be true, it often is simply that. This may typically be utilized to unusually high-yielding dividend shares, lots of which have to chop their dividends in a recession.

For instance, Stellus Capital Funding Corp. (SCM) has a dividend yield of greater than 13%, which may be very enticing on the floor. The S&P 500 Index, on common, has a dividend yield of simply 1.4%.

Not solely that, however Stellus pays its dividend every month relatively than every quarter, like most firms. This helps to make Stellus stand out, as we at present cowl 76 month-to-month dividend shares.

You possibly can obtain the complete checklist of month-to-month dividend shares (together with vital monetary metrics comparable to dividend yields and payout ratios) by clicking on the hyperlink beneath:

Nevertheless, whereas excessive dividend shares attraction in a comparatively low-rate atmosphere, traders should make sure the dividend is sustainable.

Stellus has a really excessive anticipated payout ratio of greater than 100%. As a BDC, Stellus is required to distribute primarily all of its earnings, so its payout ratio will all the time be excessive. Nevertheless, it’s in traders’ greatest pursuits to fastidiously monitor the corporate’s earnings efficiency for indicators {that a} minimize within the distribution could also be coming.

This text will talk about Stellus’ fundamentals as they pertain to supporting its excessive dividend yield.

Enterprise Overview

Stellus is a Enterprise Growth Firm (BDC) that invests in small, predominantly personal firms which might be often at an early stage of their development cycles.

Stellus is a middle-market funding agency that makes fairness and debt investments in personal middle-market firms. The corporate supplies capital options to firms with $5 million to $50 million of EBITDA and does so with numerous devices, the vast majority of that are debt.

Stellus supplies first lien, second lien, mezzanine, convertible debt, and fairness investments to a various group of consumers, usually at excessive yields, within the US and Canada.

Supply: Investor Presentation

It additionally has a extremely diversified funding portfolio, each geographically and when it comes to trade focus. Stellus will make numerous debt investments, together with first lien, second lien, uni-tranche, and mezzanine financing.

The investments are positioned in numerous industries, together with enterprise companies, industrial, healthcare, know-how, vitality, shopper merchandise, and finance. Invested capital is used for a variety of functions, together with acquisitions, development investments, and extra. Stellus is externally managed by Stellus Capital Administration LLC, a registered funding advisor.

The corporate follows a disciplined funding technique. In prior years, it closed solely about 2% of offers reviewed. Its relative selectiveness permits the corporate to give attention to the highest-quality investments.

It additionally means the corporate has way more funding alternatives than it wants, enhancing its skill to pick solely the very best investments. Stellus generates notably excessive yields from its first lien, second lien, and unsecured debt investments.

Subsequent, we’ll check out the corporate’s development prospects.

Development Prospects

A powerful catalyst for Stellus is its rising funding portfolio. Over the previous 5 years, Stellus has seen its portfolio rise quickly, permitting the corporate to earn greater funding earnings.

Nevertheless, this all stopped in 2020 because the coronavirus pandemic despatched the U.S. economic system right into a deep recession, negatively impacting lots of Stellus’ investments.

The corporate reported its monetary outcomes for the fourth quarter of 2024 on March 4th, 2025. Web funding earnings was $9.6 million, or $0.35 per share, down from $11.9 million, or $0.49 per share, within the prior yr. The corporate’s mortgage portfolio had a ten.3% yield, and traders have acquired the equal of $16.95 per share in distributions since inception.

The corporate funded $109 million of investments throughout the quarter and acquired $65 million of repayments, ending the yr with a complete portfolio truthful worth of $953 million.

Dividend Evaluation

So far as dividend shares go, Stellus isn’t a typical selection. Its dividend historical past is fewer than 10 years, which suggests it has not but developed a protracted monitor report of consistency.

You possibly can see a picture of the corporate’s distribution historical past beneath:

Supply: Investor Presentation

Stellus at present pays a month-to-month dividend of $0.1333 per share, equating to an annualized payout of $1.5996. The corporate minimize its dividend in mid-2020 because of the pandemic. On a optimistic word, Stellus has paid out particular distributions prior to now to complement its enticing month-to-month dividend additional, however this final occurred in 2022.

Web funding earnings is predicted to come back in at $1.50 per share for 2025. With the present annualized dividend of $1.5996, Stellus at present has a payout ratio of 107%. This implies the present dividend payout is exceeding what the corporate brings in at this level. Do not forget that BDCs are required to distribute practically all of their earnings, so Stellus’ payout ratio will all the time be excessive.

Even a modest decline in funding earnings may trigger the payout ratio to rise even greater than already projected, which alerts a doubtlessly unsustainable dividend.

As its latest outcomes point out, Stellus should proceed to extend its investments. Stellus is a high-risk, high-reward dividend inventory. If the corporate’s development stays on monitor, traders will obtain a ~13.4% return from the dividend, plus any capital appreciation from a rising share worth.

Even when the corporate maintains its dividend, traders shouldn’t anticipate a lot dividend development going ahead. Web funding development has been sluggish, and given the excessive payout ratio, we don’t see any catalysts for a better payout within the close to future.

Ultimate Ideas

Stellus may very well be a horny decide because it has a 13%+ dividend yield and a few measure of development potential.

Plus, Stellus pays its dividend every month, which helps increase the compounding impact of reinvested dividends and enhances the inventory’s attractiveness to those that depend on dividends for dwelling bills.

In fact, there isn’t a assure the corporate’s development plans will likely be profitable and with a payout ratio above 100%, there’s not a lot room for error. Consequently, traders should settle for the chance of a future dividend minimize if monetary outcomes deteriorate. Solely traders keen to take this danger ought to take into account shopping for the inventory.

Don’t miss the assets beneath for extra month-to-month dividend inventory investing analysis.

And see the assets beneath for extra compelling funding concepts for dividend development shares and/or high-yield funding securities.