Saratoga Investment: Increases Quarterly Dividend, Changes Payment Frequency

NEWS

NEW YORK, Feb. 18, 2025 (GLOBE NEWSWIRE) — Saratoga Investment Corp. (SAR) (“Saratoga Investment” or “the Company”), a business development company, today announced that its Board of Directors has declared a base quarterly dividend of $0.74 per share for the fiscal fourth quarter ending February 28, 2025. The dividend is payable on March 25, 2025, to all stockholders of record at the close of business on March 6, 2025.

In addition, its Board of Directors also transitioned Saratoga Investment’s dividend payment schedule from quarterly to monthly beginning with the month ended March 31, 2025. As part of that transition, it increased its quarterly dividend by $0.01 per share to $0.75 per share in aggregate for the first quarter of fiscal 2026, declaring the following three monthly $0.25 per share dividends for the quarter ended May 31, 2025:

“As a result of the strong overall performance of our diversified portfolio during the fiscal year, our board of directors approved a quarterly dividend of $0.74 per share for the quarter ended February 28, 2025, and increased our aggregated dividend for the first quarter of fiscal 2026 to $0.75 per share, representing an increase of $0.01 per share, or 1.4%, from the previous four quarters. Annualizing this dividend rate implies an industry leading 11.8% dividend yield based on Saratoga’s recent stock price of $25.39 per share on February 14, 2025. And we are also pleased to announce that we are changing the frequency of our dividend payments from quarterly to monthly. This decision is based on the Company’s strong liquidity, stable asset quality and successful long-term origination track record. Our board of directors is pleased to continue delivering attractive returns to our shareholders via solid and consistent base dividends,” said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment.For the full press release, click here
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ANALYSIS

Materiality

With nearly 50 public BDCs, each with a dedicated marketing team, there’s an abundance of BDC news every day, even outside of earnings seasons.

The BDC Reporter – in an effort not to clog up its readers in-boxes with unimportant “news you can’t use” only puts digital pen to digital paper when something new comes over the transom that is unexpected and material.

Most regular dividend payments by BDCs are pretty routine and don’t require much besides a passing nod.

In this case, though, SAR has taken two actions where its dividend is concerned that were not expected, and one that was.

Fourth In A Row

The latter was to maintain its quarterly payout – for the period from December 1, 2024 to February 28, 2025 – at $0.74 per share.

That’s the same amount as in the last 3 quarters.

If there was a surprise, it’s that SAR – after increasing its quarterly dividend for 7 quarters in a row between 2022 and 2024, decided to freeze its payment at $0.74 back in May 2024. More on that below. See the BDC’s Dividend History table:

A Little Surprise

Now we hear from SAR that from the following fiscal quarter – at a time when most other BDCs are seeing their total payouts under pressure from lower earnings – the BDC is upping the total payment to shareholders to $0.75 per share – a 1.4% increase.

And Another

SAR is also choosing to pay its dividends monthly, rather than quarterly.

This is a not uncommon – albeit still minority – choice amongst BDCs, and popular with retail investors – which suggests the move is aimed at that audience.

Not Alone

Other BDCs already paying their regular dividends monthly include Main Street Capital (MAIN); Horizon Technology Finance (HRZN); PennantPark Floating Rate (PFLT); Oxford Square (OXSQ) and Prospect Capital (PSEC) – to name a few.

VIEWS

Looking A Gift Horse In The Mouth

Most BDCs try to get their shareholders – and prospective investors – accustomed to a regular pattern of dividends.

The consistency tends to generate investor confidence and boosts the stock price, making BDC investing seem like a “bond equivalent”.

(Which it’s not, but that’s another issue).

SAR has sought to do the same over the years, going on a long run of gradually increasing its quarterly dividend between 2014 and 2020.

This was accomplished both by the BDC generating increasing profits but also by a policy of retaining a large percentage of earnings – boosting NAV and liquidity – but leaving shareholders with less jingle in their pocket than they might have otherwise received.

(Ares Capital – ARCC – has a similar dividend “philosophy”, which has been very successful for them).

Exceptions

SAR, though, occasionally jars its shareholders by unexpected decisions.

During the period of maximum anxiety during Covid, the BDC – alone of all BDCs – suspended its dividend entirely for a quarter, only to reinstate it 3 month later.

Then, last year – as mentioned above – as SAR’s earnings remained strong, management chose to stop increasing its dividend by 1 cent a quarter.

Instead – and unexpectedly – the BDC paid out a $0.35 per share “special” in December 2024.

Now, more changes are afoot, illustrating that consistency at SAR is a something thing.

Intended Consequences?

However – and to end on a positive note – we expect the switch to a monthly dividend will be popular and may help SAR’s stock price – currently trading at a (6%) discount to book – move higher.

Moreover – and however modest the increase – the upward move in the amount of the dividend will undoubtedly be welcomed by investors.

If the price moves enough, management will be in a position to sell more shares through its ATM (At The Market) program, which might be one of the objectives of this whole endeavor.

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