CGBD Offers Yield and Dividend Growth
This is one of the investments that I recommend with cautions. Business Development Companies can be very rewarding, but it is also true that they have a higher risk profile. Because we invest in many different BDCs, that gives us good diversification and it boosts our average dividend yield above 5% on our investment portfolio.
Carlyle Secured Lending declared a $0.37/share quarterly dividend. This was a 2.8% increase from the prior dividend of $0.36. The forward yield is currently 10.87%, which is double the yield on short-term CD’s. Furthermore, CGBD also announced a supplemental common dividend of $0.07.
Three Cautions Regarding CGBD
First of all, this is a micro-cap stock with a market valuation of $691M. Any smaller company means there is more risk. Secondly, this BDC has lower trading volume. This can mean that the price of the shares can vary greatly based on market sentiment. Finally, the 5-year return on CGBD is negative. In other words, without the dividend, the stock has returned -14.92% in the last five years.
To put this in perspective, MAIN’s five-year return, without dividends, is 9.34%. Another BDC, GAIN, has a five-year return of 35.03%.
EIS Investment Number Eight
This is the eight in the series. My goal is to present arguments in favor of a simplified and uncomplicated way to have income before and in retirement that grows even if we do nothing.
The best way to help you see how easy money works is by example. Today’s example focuses on a company in the financial sector. Carlyle Secured Lending is a good BDC with long-term potential. It is a newer company, founded in 2012.
In each of these educational posts I discuss: 1) The nature of the investment, 2) The reason it may qualify as easy money, 3) The quality of the investment using outside resources to help gauge quality, and the 4) Factors that determine if and when I buy shares of the investment. In each case I will be talking about an investment that we own.
The Nature of CGBD
“Carlyle Secured Lending (NASDAQ: CGBD) is an externally managed specialty finance company focused on providing flexible financing solutions to middle market companies primarily located in the United States. We focus on companies backed by private equity sponsors across a variety of industries that exhibit defensive niche strategies and have sustainable leading market positions.” – from Carlyle investor relations
“Our seasoned team of investment professionals has extensive experience in middle market credit. In addition, we are able to leverage the broad resources of The Carlyle Group to enhance the sourcing and evaluation of potential investment opportunities.” – Carlyle Investor Relations
One word of caution: CGBD dividends are not qualified. Therefore, I would not hold shares in a taxable account. Rather, we have our shares in traditional and ROTH IRA accounts. Here is what their investor FAQ’s say:
“Are dividends paid by Carlyle Secured Lending, Inc. “qualified dividends” for tax purposes? No. Dividends paid by Carlyle Secured Lending, Inc. generally are not “qualified dividends” for tax purposes. As a regulated investment company under the Code, Carlyle Secured Lending, Inc. is only permitted to pay qualified dividends to the extent that it earns qualified dividends from its underlying investments. Since our investment objective is to invest in predominantly debt instruments, we do not expect to earn any qualified dividends.”
Why I Think CGBD Qualifies using EIS*
If you look at my score card, you will see SEVEN five ratings. The Seeking Alpha QUANT rating is solid, and the ranking of CGBD compared to both the sector and the industry are in the top 20% of all of the similar businesses.
The Income from the Carlyle Secured Lending
Cindie and I hold a total of 800 shares of CGBD. Currently those shares are worth $10,888. This is a very small investment in our total portfolio. So while I like Carlyle, I am not all-in and prefer to focus on investments in ARCC, MAIN, and GAIN. The projected forward dividend for the 800 shares for 2023 is $1,184. That is a good ROI.
Factors I Consider Before Buying a BDC
Interest rates can create havoc with just about any investment. Because of the banking crisis and the failure of Silicon Valley Bank, all financial investments, including BDCs have been pummeled. Therefore, I think this is a good time to buy shares of quality BDC investments.
Reminder: What is EIS?
EIS is my abbreviation for “Easy Income Strategy.” Each value needs to be at least a “3” or I will pause and not rush to buy. If most of the values are “4” or “5”, I will either buy, or continue to hold or add more shares. Therefore, “5” is a strong reason to buy, “4” is a good reason to buy, and anything lower than a “3” is a cause for potential concern.
CGBD fits my requirements as a long-term BDC income investment.
We currently own 800 shares of CGBD stock.
The Easy Income Strategy – What is Easy Income?
We need to define “easy.” When I say easy, I don’t mean there is no work involved. Rather, the term is meant to convey simplified, unhurried, user-friendly, and uncomplicated. Therefore, it isn’t about trying to sell something, and it certainly isn’t about trading options. It also isn’t about trying to time the market with a buy low and sell high strategy. It is about a process that results in income, and the primary goal is to minimize the time spent while maximizing income that grows over time.
Easy Money is Easy
Easy money is money you can easily acquire. It is income obtained with a minimum of effort. It sounds too good to be true. In fact, most of the time when someone pitches something that is too good to be true, it isn’t true. I think there are some exceptions.