Up to date on September thirteenth, 2022 by Quinn Mohammed
Horizon Expertise Finance (HRZN) has a present dividend yield of greater than 9.5%. Horizon’s excessive dividend yield makes it extraordinarily engaging at first look. The S&P 500 Index, on common, presents only a 1.5% dividend yield.
Not solely does it have a really excessive dividend yield, however it additionally makes its funds every month. Horizon is considered one of solely 49 month-to-month dividend shares.
You’ll be able to obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yield and payout ratio) by clicking on the hyperlink beneath:
Horizon’s yield is close to the highest of the listing of month-to-month dividend shares, a gaggle that features many different high-yield securities like REITs and different Enterprise Improvement Firms.
This text will focus on Horizon’s enterprise mannequin and whether or not it’s an interesting inventory for revenue traders.
Enterprise Overview
Horizon Expertise Finance is a Enterprise Improvement Firm, or BDC. These are corporations that make investments in privately held corporations.
Horizon makes its returns by way of investments in corporations by way of immediately originated senior secured loans and, to a smaller extent, capital appreciation potential by way of warrants.
It supplies debt financing to early-stage corporations throughout three business teams:
- Life Science
- Expertise
- Healthcare Info & Companies
Life science corporations primarily embrace biotechnology, medical gadgets, and specialty prescription drugs.
Expertise investments are usually made in cloud computing, wi-fi communications, cyber safety, knowledge analytics and storage, web, software program, and extra.
Healthcare data consists of diagnostics, medical data, and affected person administration software program suppliers.
A breakdown of Horizon’s portfolio is as follows:
Supply: Investor Presentation
The portfolio is closely weighted within the life science and know-how teams, however even inside these teams, industries are extremely diversified.
As well as, the corporate has a positive mixture of secure and rising corporations, respectively, in its portfolio, to supply a mixture of development and security in its lending.
Horizon views potential investments by way of a long-term lens. It invests in corporations which have development potential, sturdy administration groups, superior know-how, and/or useful mental property.
As of the top of June, Horizon had a web asset worth of $11.69 per share. The share worth at the moment trades at a premium to web asset worth per share.
Horizon has a sound funding philosophy. It additionally has a high-quality mortgage portfolio that ought to present the corporate with development going ahead.
Progress Prospects
On August 2nd, 2022, Horizon reported second-quarter outcomes for the interval ending June thirtieth, 2022. Complete funding revenue grew by 38% year-over-year to $18.6 million. This was as a result of development in curiosity revenue on investments ensuing from a rise within the common measurement of the debt funding portfolio. Internet funding revenue per share (NIIPS) grew to $0.35, 4 cents larger in comparison with Q2 2021.
The mismatch in development to the whole revenue and revenue per share was as a result of extra share issuances that occurred to fund the corporate’s portfolio enlargement. Internet asset worth (NAV) per share got here in at $11.69, in comparison with $11.68 within the earlier quarter.
In truth, after paying its month-to-month distributions, Horizon’s undistributed spillover revenue as of December thirty first was $0.53 per share, indicating a substantial money cushion.
The portfolio remained comparatively secure, holding 91 companies on the finish of the quarter. Administration reassured traders of dividend stability going ahead by declaring its three ahead month-to-month dividends at a charge of $0.10. We’ve elevated our forecast for FY 2022 web funding revenue per share to $1.35 from $1.28.
Horizon additionally has a rising and massive addressable market.
Supply: Investor Presentation
Horizon sees a $49 billion addressable market in opposition to its present portfolio of $578 million. This could present a wealth of alternatives for Horizon, and it may possibly due to this fact choose the perfect alternatives within the coming years.
Dividend Evaluation
Horizon at the moment pays a month-to-month dividend of $0.10 per share. The annualized dividend payout of $1.20 represents a yield of 9.6%, primarily based on Horizon’s present worth. This demonstrates why BDCs are a preferred funding for revenue traders, notably one which has a yield as excessive as Horizon.
Nonetheless, abnormally excessive dividend payouts could be lowered if the issuing firm encounters monetary issue. That stated, Horizon nonetheless presents a excessive yield, which might be very interesting for revenue traders.
Internet funding revenue for 2022 is predicted to succeed in $1.35 per share, which equates to a payout ratio of 89%. That is an enchancment from 2020, when the payout ratio exceeded 100% of NII-per-share, because the coronavirus pandemic brought on a decline within the portfolio outcomes.
If funding revenue declines sooner or later, the dividend could be in peril of a discount. Alternatively, if the U.S. financial system avoids a recession, and Horizon continues to see success from its investing methods, the dividend might be maintained. To that finish, Horizon did keep its dividend funds all through 2020 and in 2021.
Associated: 3 Causes Why Firms Lower Their Dividends (With Examples)
The corporate’s aggressive benefit lies in its experience to establish essentially the most promising corporations in dangerous sectors, which requires skilled data and expertise past finance. To date, this perk has stood strong, as the corporate’s outcomes have outperformed the remainder of its friends, lots of which had been compelled to chop their distribution as a result of elevated market stress.
In an optimum state of affairs, Horizon may proceed to pay its distribution of $1.20 yearly for the foreseeable future. Nonetheless, any BDC has an elevated danger of reducing its distribution provided that it’s required to distribute primarily all of its revenue. Ought to Horizon’s monetary outcomes deteriorate, a dividend lower is actually attainable, as occurred in 2016.
Last Ideas
Excessive dividend yields are sometimes an indication of elevated danger. On this case, there’s a appreciable danger that Horizon’s dividend might be lowered sooner or later if its funding revenue deteriorated, which might possible happen in a deep recession.
Nonetheless, the outlook for Horizon is usually optimistic. It invests in know-how and healthcare, two secure industries with development potential. The corporate’s underwriting ideas provide excessive yields and usually secure lending situations, which help web funding revenue and due to this fact, the dividend.
Horizon might be a lovely excessive dividend inventory for revenue traders due to its 9.6% dividend yield, with the acknowledgment that the dividend might be in danger within the occasion of a enterprise downturn.
In case you are enthusiastic about discovering extra high-quality dividend development shares appropriate for long-term funding, the next Positive Dividend databases might be helpful:
The most important home inventory market indices are one other strong useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month:
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to [email protected].