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

Up to date on April eleventh, 2025 by Nathan Parsh

Because the saying goes, if one thing appears to be like too good to be true, it often is simply that. This will usually 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 could be very engaging 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 quite than every quarter, like most firms. This helps to make Stellus stand out, as we presently cowl 76 month-to-month dividend shares.

You’ll be able to obtain the complete checklist of month-to-month dividend shares (together with essential monetary metrics resembling dividend yields and payout ratios) by clicking on the hyperlink under:

Nonetheless, whereas excessive dividend shares enchantment in a comparatively low-rate surroundings, buyers 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 revenue, so its payout ratio will all the time be excessive. Nonetheless, it’s in buyers’ greatest pursuits to rigorously monitor the corporate’s earnings efficiency for indicators {that a} reduce within the distribution could also be coming.

This text will focus on 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, typically at excessive yields, within the US and Canada.

Supply: Investor Presentation

It additionally has a extremely diversified funding portfolio, each geographically and by way of business 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, expertise, vitality, client 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 deal with the highest-quality investments.

It additionally means the corporate has much more funding alternatives than it wants, enhancing its potential to pick solely the most effective investments. Stellus generates significantly excessive yields from its first lien, second lien, and unsecured debt investments.

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

Progress Prospects

A robust 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 revenue.

Nonetheless, 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 revenue was $9.6 million, or $0.35 per share, down from $11.9 million, or $0.49 per share, within the prior 12 months. The corporate’s mortgage portfolio had a ten.3% yield, and buyers have obtained the equal of $16.95 per share in distributions since inception.

The corporate funded $109 million of investments throughout the quarter and obtained $65 million of repayments, ending the 12 months with a complete portfolio honest worth of $953 million.

Dividend Evaluation

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

You’ll be able to see a picture of the corporate’s distribution historical past under:

Supply: Investor Presentation

Stellus presently pays a month-to-month dividend of $0.1333 per share, equating to an annualized payout of $1.5996. The corporate reduce its dividend in mid-2020 because of the pandemic. On a optimistic notice, Stellus has paid out particular distributions previously to complement its engaging month-to-month dividend additional, however this final occurred in 2022.

Web funding revenue is predicted to return in at $1.50 per share for 2025. With the present annualized dividend of $1.5996, Stellus presently has a payout ratio of 107%. This implies the present dividend payout is exceeding what the corporate brings in at this level. Keep in mind that BDCs are required to distribute practically all of their revenue, so Stellus’ payout ratio will all the time be excessive.

Even a modest decline in funding revenue may trigger the payout ratio to rise even greater than already projected, which indicators a probably 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, buyers will obtain a ~13.4% return from the dividend, plus any capital appreciation from a rising share value.

Even when the corporate maintains its dividend, buyers shouldn’t count on 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.

Last Ideas

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

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

In fact, there is no such thing as a assure the corporate’s development plans can be profitable and with a payout ratio above 100%, there may be not a lot room for error. In consequence, buyers should settle for the danger of a future dividend reduce if monetary outcomes deteriorate. Solely buyers prepared to take this danger ought to contemplate shopping for the inventory.

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

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