Since the last update, PennantPark Investment Corporation (PNNT) has been added to the portfolio at an average price of $11.09. It currently comprises 4.9% of the portfolio. The purchase was part of a portfolio rebalance that included selling some shares of JNJ, NS, NRP, ETN and LNCO.
PennantPark is a business development company (BDC) headquartered in New York City, founded and led by Arthur Penn since its inception in January, 2007. The initial public offering was in April, 2007. PNNT invests primarily in U.S. middle-market companies. As of December 31, 2012, PNNT was invested in 56 companies, with an average investment of $19 million. Of these, 29% was in senior secured loans, 20% in second lien secured debt, 39% in subordinated debt, and 12% was in preferred and common equity investments.
The value of the portfolio on December 31, 2012 was $1,064.4 million. Of the debt portfolio, 66% was fixed-rate and 34% was variable-rate.
PNNT paid its first dividend of $.14 in June, 2007. The dividend was raised to $.22 in September, 2007, and it has been gradually raised to the current quarterly dividend of $.28. The dividend was last raised (from $.27) in January, 2012. The annual dividend is $1.12. At a February 8, 2013 price of $11.10, the yield was 10.1%. At December 31, 2012, the net asset value was $10.38. The stock traded at a 6.9% premium to NAV.
The company's 2012 Q4 earnings were $.28 per share, which was the same as the quarterly dividend. At the company's most recent conference call, on February 7, 2013, CEO Arthur Penn stated his commitment to maintaining the dividend. He reminded listeners that PNNT did not cut its dividend during the Great Recession and is committed to at least maintaining the present dividend. He said the company has a healthy cash position and is committed to cover any shortfall (between the EPS and the quarterly dividend) from cash reserves if necessary.
This was in the context of "Will the company make additional investments in order to maintain or grow the dividend?" Mr. Penn said the company would not make investments just for the sake of getting its earnings over $.28 per quarter. They will maintain strong liquidity and will invest the company's funds wisely. He said they would rather dip into the cash to cover part of the dividend rather than to invest in a company that otherwise does not meet their criteria. Mr. Penn's statement expressed both confidence and prudence.
PNNT was added to the portfolio because management seems to have a good business plan, a conservative approach, and has demonstrated a commitment to raising the dividend over time.
The conference call is archived at (888) 203-1112 and is available for replay through February 21, 2013.
As of February 8, 2013, the portfolio consisted of fourteen stocks and five closed end funds (CEFs):
Genuine Parts Company (GPC) 3.9%
Johnson & Johnson (JNJ) 5.2% (reduced from 5.5%)
National Retail Properties (NNN) 4.9%
W.P. Carey Inc (WPC) 5.0%
PennantPark Investment Corporation (PNNT) 4.9% (New to Portfolio)
Southern Company (SO) 4.9%
NuSTAR Energy L.P. (NS) 4.9% (reduced from 7.1%)
Natural Resource Partners L.P. (NRP) 5.7% (reduced from 7.5%)
Starwood Property Trust Inc. (STWD) 5.3%
Eaton Corp. P.L.C. (ETN) 5.1% (reduced from 5.4%)
LinnCo L.L.C. 5.1% (LNCO) (after a sell and a buy, reduced from 5.6%)
LTC Properties Inc. (LTC) 4.9%
PPL Corp. (PPL) 5.0%
Annaly Capital Management Inc. (NLY) 4.9%
BlackRock Utility & Infrastructure Trust (BUI) 5.1%
NFJ Dividend & Premium Strategy Fund (NFJ) 5.0%
Eaton Vance Tax-Managed Buy-Write Opportunities Fund (ETV) 4.8%
Nuveen Equity Premium Advantage Fund (JLA) 4.9%
ING Global Advantage & Premium Opportunity Fund (IGA) 5.0%
Cash 5.6%
The portfolio yield as of February 8, 2013 was 6.7%.
This is not a recommendation to buy, but a suggestion for a stock to study for possible inclusion in a dividend portfolio. Everyone's situation is different. Please do your own due diligence.
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