PennantPark Floating Rate Capital: Diversified portfolio and attractive dividend

Stable dividend payout

PennantPark Floating Rate Capital $PFLT is a business development company (BDC) that offers investors an attractive dividend yield. With the exception of 2018, it pays monthly dividends that have been increasing or remaining stable since 2011. At current prices, the dividend yield is 10.7%, making this company attractive to investors looking for passive income.

Portfolio structure: senior secured loans

PennantPark Floating Rate Capital $PFLT focuses primarily on senior secured debt, meaning that these loans have priority ranking for repayment in the event of a borrower's bankruptcy. Unlike competitor Ares Capital, where senior secured loans make up only 50% of assets, at PennantPark Floating Rate Capital $PFLT almost all loans are senior secured debt. This provides an additional level of security for investors.

Less exposure in equity and fixed rate

Another difference from Ares Capital is the structure of investments in equity and fixed rate loans. While Ares Capital holds approximately 31% of its portfolio in these investments, PennantPark Floating Rate Capital holds only 13% in equity and no fixed rate investments, which may reduce sensitivity to interest rate changes.

Smaller but efficient team and low level of distressed assets

PennantPark's underwriting team, while smaller than Ares Capital's, is still large enough to effectively service mid-sized businesses. The company works with more than 230 private equity sponsors, ensuring the diversity and reliability of their portfolio. At the end of June, only three portfolio companies were in distress with 1.5% of the portfolio in value, indicating a careful approach to risk management.

Diversified portfolio

At the end of June, the largest concentrated sector was professional services, which accounted for 7.8% of the portfolio. Overall, the company's portfolio is well diversified across a variety of sectors, providing stable cash flows and ensuring that PennantPark Floating Rate Capital can continue to make regular dividend payments.

Conclusion

PennantPark Floating Rate Capital $PFLT represents an interesting investment opportunity for investors looking for stable returns. With senior secured loans, a diversified portfolio, and a consistent approach to risk management, this BDC has the potential to continue to maintain and grow its monthly dividend in the coming years.