Comparing SAR with Other Main BDC Investments

Easy Income Strategy – Saratoga Investment Corp and some of their investments

As noted in yesterday’s post, I do like BDC investments. And, as I said yesterday, BDCs are for investors who understand and are not frightened by risk or at least market volatility. The primary goal is high income, not stability of the share price. SAR is one of our BDC investments.

SAR is worthy of consideration given the Seeking Alpha Ratings Summary

Two Cautions Regarding SAR

First of all, this is a micro-cap stock with a market valuation of $289M. As anyone who invests in companies knows, the smaller company means there is more risk. Secondly, this BDC has very low trading volume. This can mean that the price of the shares can vary greatly based on market sentiment.

SAR has also suspended and reduced their dividend in recent history. That is another reason to pause before you load up on the shares.

BDCs can suspend or reduce their dividend. There is risk with all investing.

EIS Investment Number Nine

This is the ninth 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. Saratoga Investment Corp is a good BDC with long-term potential. It is a newer company, founded on 03/23/2007.

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 SAR

SAR, like most BDC’s is invested in a diverse portfolio. Furthermore, you generally cannot invest in the companies in the BDC’s portfolio. This gives you access to portions of the economy that others cannot touch.

Saratoga Investment Corp. is a business development company specializing in leveraged and management buyouts, acquisition financings, growth financings, recapitalization, debt refinancing, and transitional financing transactions at the lower end of middle market companies. It structures its investments as debt and equity by investing through first and second lien loans, mezzanine debt, co-investments, select high yield bonds, senior secured bonds, unsecured bonds, and preferred and common equity. The firm prefers to invest in aerospace, automotive aftermarket and services, business products and services, consumer products and services, education, environmental services, industrial services, financial services, food and beverage, healthcare products and services, logistics, distribution, manufacturing, restaurants services, food services, software services, technology services, specialty chemical, media, and telecommunications. It seeks to invest in the United States. The firm primarily invests $5 million to $50 million in companies having EBITDA of $2 million or greater and revenues of $8 million to $250 million. The firm prefers to take a majority stake. It invests through direct lending as well as participation in loan syndicates. The firm was formerly known as GSC Investment Corp. Saratoga Investment Corp. is based in New York, New York with an additional office in Florham Park, New Jersey.

Comparing SAR with other BDCs

SAR is similar to other BDCs we own. All of them have relatively high dividend yields. All of them are more aligned with the long-term value investing approach. Having said that, the last three years have been generally very positive for BDC investments.

Seeking Alpha makes it very easy to compare similar types of investments.

Comparing our BDC Holdings

As you can see in the following illustration, our top BDC holding is MAIN, followed by ARCC and GAIN. CSWC is number four and SAR comes in a distant fifth, but certainly ahead of CGBD in terms of total invested capital.

Holdings of our top five BDC investments.

Why SAR Qualifies using EIS*

If you look at my score card, you will see FIVE “5” ratings. The Seeking Alpha QUANT rating is solid, and the ranking of SAR compared to both the sector and the industry are in the top 20% of all of the similar businesses.

SAR meets my requirements for a BDC investment. High yield is the focus.

The Income from the Saratoga Investment Corp

Cindie and I hold a total of 1,300 shares of SAR. Currently those shares are worth $31,577. This is a small investment in our total portfolio. So while I like SAR, I am not all-in and prefer to focus on investments in ARCC, MAIN, and GAIN. The projected forward dividend for the 1,300 shares for 2023 is $3,588. 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.

Weiss says “hold” SAR. A “B” or an “A” would be a buy signal.

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.


SAR fits my requirements as a long-term BDC income investment. But I would not suggest that a beginning investor load up on SAR. It would be more prudent to pick ARCC and MAIN as primary BDE investments.

Full Disclosure

We currently own 1,300 shares of SAR 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.