Updated May 28, 2021 by Bob Ciura
Horizon Technology Finance (HRZN) has a current dividend yield of more than 7%. Horizon’s high dividend yield makes it extremely attractive at first glance. The S&P 500 index only offers a dividend yield of ~ 1.4% on average.
Not only does it have a very high dividend yield, but it also pays every month. Horizon is one of only 54 monthly dividend stocks.
You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics like dividend yield and payout ratio) by clicking the link below:
Horizon’s returns top the list of monthly dividend stocks, a group that includes many other high yield stocks like REITs and other BDCs.
This article explains Horizon’s business model and whether it’s an attractive stock for high-income investors.
Horizon Technology Finance is a Business Development Company (BDC). These are companies that invest in private companies.
Horizon achieves its return by investing in companies through direct senior secured senior secured loans and, to a lesser extent, through capital appreciation through warrants.
It provides debt financing for early stage companies in three industry groups:
- Life sciences
- Health information and services
The life science companies primarily include biotechnology, medical devices and specialty pharmaceuticals.
Technology investments are typically made in cloud computing, wireless communications, cybersecurity, data analysis and storage, internet, software, and more.
Health information includes diagnoses, medical records, and patient management software providers.
Horizon’s portfolio is divided as follows:
Source: Investor Presentation
The portfolio is heavily weighted in the technology group, but even within this group the industries are highly diversified.
In addition, the company has a favorable mix of stable and growing companies in its portfolio to ensure a mix of growth and security in lending.
Horizon looks at potential investments through a long-term lens. It invests in companies with growth potential, strong management teams, superior technology and / or valuable intellectual property.
At the end of March, Horizon had a net asset value of $ 11.07 per share. The share price is currently trading at a premium to the net asset value.
Horizon has a solid investment philosophy. It also has a high quality loan portfolio that is expected to enable the company to grow in the future.
April 27thth, 2021, Horizon released its Q1 results for the period ended March 31st2021. The total investment result rose 31% year over year to $ 13.2 million. ThThis is due to the growth in investment interest income resulting from an increase in average size of the debt portfolio. Net investment income per share (ISS) rose to $ 0.31, up 19% compared to Q1 2020.
The disproportion in growth to toThe result was due to the additional share issues Location to finance the company’s portfolio expansion. The net asset value (NAV) per share was $ 11.07 compared to $ 11.02 in the previous quarter as Horizon earned more than it paid out Distributions.
Indeed after paying his monthly payouts, Horizons undistributed spillover earnings as of March 31stst was $ 0.33 per share, which is a considerably cash register Pillow.
The portfolio remained relatively stable, holding 67 trades at the end of the quarter. Management assured investors of future dividend stability by declaring its three monthly dividends on a rate of $ 0.10. We continue to expect an ISS / share of $ 1.25 for fiscal 2011.
Horizon also has a growing and hugely addressable market.
Source: Investor Presentation
Horizon sees an addressable market of $ 16 billion versus its current portfolio of $ 380 million. This should give Horizon a wealth of options, so it can pick the best options for years to come.
Horizon currently pays a monthly dividend of $ 0.10 per share. The annualized dividend payout of $ 1.20 equals a yield of 7.3% based on the current price of Horizon. This shows why BDCs are a popular investment for high income investors, and especially one with a return as high as Horizon’s.
However, unusually high dividend payouts can be reduced if the issuing company encounters financial difficulties. Even so, Horizon still offers high returns, which could be very attractive for high-income investors.
Net investment income is expected to reach $ 1.25 per share for 2021, giving a payout ratio of 96%. This is an improvement over 2020, when the payout ratio topped 100% of the NII per share as the coronavirus pandemic caused portfolio results to decline.
If investment income declines in the future, there is a risk that the dividend will be reduced. On the other hand, if the US economy avoids a recession and Horizon continues to see success with its investment strategies, the dividend could be held. To that end, Horizon has maintained its dividend payments throughout 2020 and up to now in 2021.
The company is competitive The benefit lies in his expertise in identifying the most promising companies in high risk sectors that require it Expertise and experience beyond finance. So far this is byk has stood solid as a company Have results outperformed the rest of its competitors, many of whom were forced to cut their distribution due to the increased market Print.
In an optimal scenario, Horizon could continue to pay an annual payout of $ 1.20 for the foreseeable future.
However, any BDC has an increased risk of cutting their payout as they have to distribute essentially all of their income. Should Horizon’s financial results worsen, a dividend cut is certainly possible, as happened in 2016.
High dividend yields are often a sign of increased risk. If so, there is a significant risk that Horizon’s dividend will be reduced in the future if investment income deteriorates, which could occur in a deep recession.
However, the outlook for Horizon is generally positive. It invests in technology and healthcare, two stable industries with growth potential. The company’s underwriting policies offer high returns and generally secure credit terms that support net investment income, and therefore dividends.
Horizon could make an attractive, high-dividend stock for high-income investors thanks to its dividend yield of 7.3%, recognizing that the dividend could be at risk in a business downturn.
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