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Fifth Street Finance: Stock Dropping

At 2 p.m. EST, Fifth Street Finance’s (FSC) stock price had dropped over 17%. See chart above.

The price drop followed FSC’s earnings release for the quarter ended December 31, 2016.

The key catalyst for the drop was the cut in the distribution, announced in the press release:

Dividend Declaration

In addition to our previously declared monthly dividend of $0.06 per share, which is payable on February 28, 2017 to stockholders of record on February 15, 2017, our Board of Directors met on February 6, 2017 and declared the following distributions:

  • monthly dividend of $0.02 per share, payable on March 31, 2017 to stockholders of record on March 15, 2017;  
  • quarterly dividend of $0.02 per share, payable on June 30, 2017 to stockholders of record on June 15, 2017; and 
  • quarterly dividend of $0.125 per share, payable on September 29, 2017 to stockholders of record on September 15, 2017.

Dividends are paid primarily from distributable (taxable) income. To the extent our taxable earnings for a fiscal taxable year fall below the total amount of our dividend distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to our stockholders. Our Board of Directors determines dividends based on estimates of distributable (taxable) income, which differ from book income due to temporary and permanent differences in income and expense recognition and changes in unrealized appreciation and depreciation on investments.

 

FSC ANALYSIS
  • Eleven investments are on non-accrual, or nearly 1 in 10 of loans on the books.
  • The stock price is currently trading at 63% of the latest Net Asset Value of $7.31.
  • The new annualized dividend-once it gets going in September-will be $0.50 a year.
  • The effective yield will be 10.8% on a pro-forma basis at the current price.
  • FSC came public in 2008 at $14.12 a share. Given today’s price, the price has dropped by two-thirds.
  • The annual distribution was $1.284 in 2011. At the new level, the annual pay-out “running rate” will have dropped about 60% over the 5 year period.