Fifth Street Finance Pays Dividends Monthly


In most cases, shareholders need to wait one quarter or a year to receive dividend payments. But withFifth Street Finance ( FSC ), the payments come monthly.

Fifth Street is currently paying about 9.5 cents per share a month, which works out to an annualized dividend yield of more than 10%.

The firm is able to do that as a business development company, a structure in which it pays no federal tax as long as it passes at least 90% of taxable profits to shareholders.

This makes it similar to real estate investment trusts and master limited partnerships, which also distribute most profits to shareholders, and thus are an option for income-seeking investors.

Business development companies, or BDCs, are like venture capitalists, providing financing to companies in their early stages, often with joint backing from private equity. Fifth Street debuted on the Nasdaq in June 2008.

Of course, there's considerable risk in young companies. Dean Choksi, head of investor relations, told IBD the portfolio is among the lowest-risk in the BDC industry because it's comprised of 79% senior securities and because of the way it's diversified. Plus, most investments are originated and managed by the Fifth Street platform.

Fifth Street Finance's stock hasn't been a screamer but it's corrected no worse than 15% since 2012. The quarterly earnings performance ranks among the steadiest in IBD's database.

In July, the firm took publicFifth Street Senior Floating Rate ( FSFR ), a BDC that invests primarily in senior secured loans. Because it focuses on adjustable-rate debt, its returns figure to increase if interest rates rise. Much of Fifth Street Finance also has floating-rate debt. The new issue doesn't have sufficient cash to pay a dividend yet.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas

Referenced Stocks: FSC , FSFR

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