Number Nine is Not a Buy but a Hold
As noted in the previous post, I sold most of our investment in AT&T this week, which had been in the top ten investments we hold. Now is a good time to provide an update of the top ten. Number 9 in terms of dollars invested is GAIN – Gladstone Investment. Don’t buy shares at the current price of $13.56. The P/E is a steep 17.16. If the price dropped to $11-12 per share, I might be tempted to add to our shares.
Our Current Ownership of GAIN
Cindie and I own a combined total of 4,720 shares of GAIN in six accounts: ROTH, brokerage, and traditional IRA accounts. Of this total, I own 2,000 shares in my traditional IRA and 600 in my ROTH. Cindie owns a total of 2,100 shares. We also have 20 shares in a Fidelity mySmart Cash Account.
Why Does GAIN Qualify for the TOP TEN?
First of all, it is a hybrid business development company (BDC) and private equity firm. This means we can own pieces of businesses that aren’t available on the open market. GAIN is not a dividend growth story, but I like investments in the BDC realm. GAIN pays us $3,930 in annual income for our 4,720 shares. That is about $325 per month. This will pay for all of our health insurance premium costs.
In addition, the very nature of GAIN provides some interesting diversification. I created the following image to illustrate just a portion of their investing universe. GAIN is a small player that helps other smaller players and makes a profit doing so.
The P/E FWD is 17.16, so now would not be a time I would buy more shares. The dividend yield, however, is 6.19%. This is better than any utility or bond. There is little dividend growth, but GAIN pays a monthly dividend. The ten-year growth rate of the investment is 107.84%. Nevertheless, 2020 was a rough year for GAIN. Even so, when the share price dropped, insiders started buying. That is a good sign, because insiders believed that the problems were temporary and acted accordingly.
Therefore, GAIN was a scary investment during Covid-19. The price of the shares dropped to $6.51, and that was when the insiders were buying. I did not sell any shares. Instead, I bought more shares in March 2020. This is an ongoing strategy: buy low and then hold on and collect the dividends.
GAIN’s Sector, Industry, and Market Cap
Industry: Asset Management and Custody Banks
Gladstone Investment Corporation is a private equity fund specializing in lower middle market, acquisitions, mature stage, buyouts; recapitalizations; refinancing existing debt; senior debt securities such as senior loans, senior term loans, lines of credit, and senior notes; senior subordinated debt securities such as senior subordinated loans and senior subordinated notes; junior subordinated debt securities such as subordinated notes and mezzanine loans; limited liability company interests, and warrants or options. The fund does not invest in start-ups. The fund seek to invest in manufacturing, consumer products and business services/ distribution sector. It seeks to invest in small and mid-sized companies based in the United States. The fund prefers to make debt investments between $5 million and $30 million and equity investments between $10 million and $40 million in companies. The fund seeks to invest in companies with sales between $20 million and $100 million. The fund invest in companies with EBITDA from $3 million to $20 million. It seeks minority equity ownership and prefers to hold a board seat in its portfolio companies. It also prefers to take majority stake in its portfolio companies. The fund typically holds its investments for seven years and exits via sale or recapitalization, initial public offering, or sale to third party.
Seeking Alpha Opinion Article: GAIN