A Seven Percent Dividend Increase
The dividend increases continue to roll up for our retirement account holdings. Sixth Street Specialty Lending, Inc. just announced another increase. However, be mindful that the dividend for TSLX goes up and down. Therefore, I would not classify it as a true dividend growth investment or a growth investment. It is a value investment and a great cash cow for some retirees. It is also highly diversified as some images below will reveal.
The Dividend Announcement
Sixth Street Specialty Lending, Inc. (NYSE: TSLX) declares $0.45/share quarterly dividend, which is a 7.1% increase from prior dividend of $0.42. The forward yield 9.84%. The dividend is payable Dec. 30; for shareholders of record Dec. 15; ex-div Dec. 14. In other words, if you want the $0.45 dividend, buy shares before December 14.
TSLX Earnings Report
Sixth Street Specialty Lending, Inc. reported Q3 results on Nov. 01, 2022. Their press release (NYSE: TSLX): said that Q3 Net Investment Income was $0.47 and Non-GAAP EPS were $0.43. The total investment income was $77.8M (+9.3% Y/Y), beating estimates by $2.31M. TSLX is a small cap investment. The market cap of TSLX is a small $1.47B. Yes, billion is small.
I am always a fan of geographic and sector diversification. Therefore, even a BDC needs to show they are serious about diversification. They must also be serious about cash flowing to the investor. TSLX meets my requirements for both.
TSLX has good borrower diversification, industry diversification, portfolio diversification, and theme diversification. The images are from a TSLX investor presentation. You can get investor presentations at their web site. A link is provided at the end of this blog post.
TSLX ROE Versus other BDCs
According to TSLX, they excel in ROE. What is ROE?
What Is Return on Equity (ROE)?
“Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. Because shareholders’ equity is equal to a company’s assets minus its debt, ROE is considered the return on net assets.”
“ROE is considered a gauge of a corporation’s profitability and how efficient it is in generating profits. The higher the ROE, the more efficient a company’s management is at generating income and growth from its equity financing.” SOURCE: INVESTOPEDIA
Seeking Alpha Ratings
TSLX has a 3.12 HOLD rating. If you own shares, you should not sell them unless you want to buy a different investment. However, don’t buy TSLX as a major holding. I would say the average investor should consider only 1-5% of their holdings in BDC investments. An “average” investor would be someone with $250-500K in retirement assets. Therefore, if you have $500K in assets, you might want to limit your exposure to BDC’s to $25K in total.
Weiss Ratings would caution the average investor to think twice before buying shares of TSLX. The shares are rated C-. However, Weiss tends to dislike BDCs from what I can tell from my limited use of Weiss in recent years. This is understandable, as BDCs face greater risk and are not generally growth investments.
Company Profile – Sixth Street Specialty Lending, Inc
Sixth Street Specialty Lending, Inc. (NYSE: TSLX) is a business development company. The fund provides senior secured loans (first-lien, second-lien, and unitranche), unsecured loans, mezzanine debt, and investments in corporate bonds and equity securities and structured products, non-control structured equity, and common equity with a focus on co-investments for organic growth, acquisitions, market or product expansion, restructuring initiatives, recapitalizations, and refinancing. The fund invests in business services, software & technology, healthcare, energy, consumer & retail, manufacturing, industrials, royalty related businesses, education, and specialty finance.
It seeks to finance and lending to middle market companies principally located in the United States. The fund invests in companies with enterprise value between $50 million and $1 billion or more and EBITDA between $10 million and $250 million. The transaction size is between $15 million and $350 million. The fund invests across the spectrum of the capital structure and can arrange syndicated transactions of up to $500 million and hold sizeable positions within its credits.
Cindie and I own 1,750 shares of TSLX as a long-term investment. I cannot recommend TSLX over some other BDCs. If you are interested in BDCs, you should also consider MAIN and ARCC. TSLX is not one of our top ten holdings.
LINK: Sixth Street PORTFOLIO