FS-KKR Capital: Dividend Outlook For 2026

INTRODUCTION

One of the new Subscriber Tools we’re working on is called the BDC Dividend Outlook. We intend to offer readers a regularly updated projection of the likely 2026 distribution for every public BDC out there. Of course, the level of a BDC’s dividends is a critical factor for investors. This is especially important right now, as dividend levels are in great flux. Some BDCs are holding the line, while others have already taken their scissors out and effected a cut. Many others might or might not make a move. Our tool will give our readers a sense of what to expect, backed up by the reasoning for the projection chosen.

We’re two-thirds of the way ready to unveil the BDC Dividend Outlook, but we won’t wait to discuss some of the more egregious changes that have occurred in recent weeks. Which brings us to FS-KKR Capital (FSK). The fifth-largest BDC has made a drastic switch, which we’ll discuss below.

Those Were The Days

First, a little recent history.

Back in 2025, FSK paid out $2.80 per share in regular and supplemental dividends.

This was still a very high payout level, not far behind the $2.95 paid out at the height of the interest rate cycle in 2023.

In 2024, FSK paid $2.90. 

However, in 2025, FSK was being more generous than they could afford, as Net Investment Income Per Share was only $2.34.

You don’t need the BDC Reporter to know that a dividend cut was inevitable.

We innocently projected 2026’s payout would drop to $2.20 per share.

Worse

That was not to be.

Shareholders in the BDC received the bad news on the most recent earnings conference call, wrapping up 2025.

Management reduced the regular dividend from $0.64 to $0.45 starting in the IQ 2026. That was a 30% cut and reduced the “Variable Supplemental” to $0.03 - a 50% cut.

Overall, the IQ 2026 payout is off (31%) from the quarter before.

If we annualize the first 3 months of dividends, the full year payout in 2026 would come to $1.92.

Not So Fast

However, in our projection, we’re assuming that FSK pays no further supplement in 2026.

That’s mostly because the analysts estimate that - once again - recurring earnings are likely to fall below the payout.

In the IQ 2026, the 8 analysts who make up the consensus project recurring EPS of $0.45, which will fall further in the IIQ 2026 to $0.43.

That seems reasonable, as all BDCs will feel the full impact of the several rate cuts that occurred in the last few months of 2025 at the beginning of 2026.

Even FSK itself, on its conference call, set its likely EPS at that amount.

Plus, FSK had 5 new non-accruals in the IVQ 2025, which should erode earnings as well. 

Given that FSK earned $0.48 per share in the IVQ 2025, a further drop in profitability seems all but inevitable.

 For the full year, the consensus is for NIIPS of $1.71 and an even lower $1.63 in 2027.

If the BDC were to right-size its payout to match its profitability, even the new regular dividend would need to be cut very shortly.

Savings Account

The joker in the pack is the still considerable spillover income FSK boasts: $1.66 a share.

Both for regulatory reasons and to smooth out its distributions, we estimate that FSK will choose to tap some of that spillover in 2026. That’s just $0.12 a share.

Upside

FSK may even choose to maintain the $ 0.03-per-quarter supplemental through the year. If that happens, the payout will be $1.92 in the end, but that’s not our base case.

Further Afield

A lot can happen in the months ahead, but we currently envisage that FSK will resume reducing its quarterly dividends in 2027 as well.

We’re not yet making a formal projection, but the numbers do suggest the regular distribution could fall to $0.40 from $0.45 in 2027. 

If we’re right, the likely payout in 2027 could be only $1.60 per share in 2027, a near 50% drop from the BDC’s heyday 4 years before. 

Big Picture

As this chart shows, FSK peaked in price, along with many other BDCs, in February 2025 at a closing price of $24.06.

Currently, the stock trades at $10.79, with a recent 52-week low of $10.28.

At its 2025 price height, FSK yielded 11.6%.

Currently, if our $1.83 dividend estimate is correct, the yield in 2026 will run to 17.0%, and 17.8% using the IQ 2026 payout annualised.

If we use the preliminary 2027 payout, the yield comes to 14.8%. 

Confidence Is Meh

We’d like to say that the 2026 and 2027 dividend estimates are a sure thing, and investors can safely lock in those mid-teens yields, confident they will materialise.

Unfortunately, we rate our confidence level even for the 2026 payout as only MODERATE.

Challenges

That’s because FSK continues to be in something of a credit freefall.

This is reflected in the BDC’s Net Asset Value Per Share (NAVPS), down (17%) in the last 5 years, (12%) in the last 12 months and (5%) just in the IVQ 2025.

Our sister publication, the BDC Credit Reporter, values the BDC’s Important Underperformers - companies valued below 80% of cost and with an FMV greater than $5mn to weed out the immaterial - at $969mn.

That amounts to 17% of FSK’s net assets - one of the highest percentages we’ve seen among the BDCs we’ve collected this data about. 

Then there’s the continuing uncertainty about the future direction of interest rates. A lower rate may be good for your credit card and - maybe - for your mortgage, but won’t be for FSK.

Anyone worrying about software exposure should know that FSK is 16% in that segment - a sort of mid-range.

To date, there’s been no special trouble in its software segment.

Of the 10 non-accruals on the books, 2 are software-related: Tangoe Inc. and Cubic Corp.

We’ve just written an article about the latter and can affirm that the company’s problems are not related to AI challenges and the like, but rather to more prosaic issues with its largest customers.

However, should the software bogeyman prove to be real, that could ignite further, unexpected credit losses and reduce income. 

Both Sides

There are some potential upsides to consider.

Management could permanently or temporarily waive some parts of its compensation package. This was a subject directly addressed by an analyst on the conference call.

Management’s response - at least this time - was not encouraging. 

That may change as investors point out that their net return (Net Investment Income - Net Losses) amounted to $11mn while the manager took home $342mn in 2026.

FSK could “turn around “ some of the troubled borrowers on its books.

Typically, though, we see very few troubled companies reviving once they are seriously in trouble. It’s more a matter of damage limitation. 

VIEWS

After several solid years, FSK’s dividend payout is sharply down in 2026 and could fall further.

Nonetheless, the current yield - even one with a more pessimistic payout estimate - is substantially higher than in the Good Old Days.

However, investors will be asking themselves whether a permanent bottom has been found or further snips to the dividend may be coming over the time horizon we’ve set ourselves, especially with several “known unknowns.”