Up to date on September twenty sixth, 2024 by Felix Martinez
Horizon Know-how Finance (HRZN) has a present dividend yield of greater than 12.9%. Horizon’s excessive dividend yield makes it extraordinarily enticing at first look. The S&P 500 Index, on common, presents only a 1.3% dividend yield.
Not solely does it have a really excessive dividend yield, nevertheless it additionally makes its funds every month. Horizon is one in all solely 78 month-to-month dividend shares.
You possibly can 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 record of month-to-month dividend shares, a gaggle that features many different high-yield securities like REITs and different Enterprise Growth Firms.
This text will focus on Horizon’s enterprise mannequin and whether or not it’s an interesting inventory for earnings buyers.
Enterprise Overview
Horizon Know-how Finance is a Enterprise Growth Firm, or BDC. These are corporations that make investments in privately held corporations.
Horizon makes its returns by way of investments in corporations via straight originated senior secured loans and, to a smaller extent, capital appreciation potential via warrants.
It offers debt financing to early-stage corporations throughout three business teams:
Life Science (40% of portfolio)
Know-how (35% of portfolio)
Sustainability (15% of portfolio)
Healthcare Info & Providers (10% of portfolio)
Life science corporations primarily embrace biotechnology, medical units, and specialty prescribed drugs.
Know-how investments are usually made in cloud computing, wi-fi communications, cyber safety, knowledge analytics and storage, web, software program, and extra.
Healthcare data contains 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 steady and rising corporations, respectively, in its portfolio to offer a mixture of development and security in its lending.
Horizon views potential investments via a long-term lens. It invests in corporations which have development potential, sturdy administration groups, superior know-how, and/or invaluable mental property.
Development Prospects
The portfolio remained comparatively steady, holding 98 companies on the finish of the quarter. Administration reassured buyers of dividend stability going ahead by declaring its three ahead month-to-month dividends at a charge of $0.11. Based mostly on Horizon’s present portfolio composition, we forecast FY2023 NIISS of $1.45.
Horizon additionally has a rising and massive addressable market.
Supply: Investor Presentation
Horizon sees a $26 billion addressable market towards its present portfolio. This could present a wealth of alternatives for Horizon, and it might probably due to this fact choose the very best alternatives within the coming years.
Dividend Evaluation
Horizon at the moment pays a month-to-month dividend of $0.11 per share. The annualized dividend payout of $1.35 represents a yield of 12.9%, primarily based on Horizon’s present value. This demonstrates why BDCs are a preferred funding for earnings buyers, significantly one which has a yield as excessive as Horizon.
Nevertheless, abnormally excessive dividend payouts could be lowered if the issuing firm encounters monetary problem. That mentioned, Horizon nonetheless presents a excessive yield, which could possibly be very interesting for earnings buyers.
Internet funding earnings for 2024 is anticipated to succeed in $1.45 per share, which equates to a payout ratio of 92%. The payout ratio has improved notably since 2020, when the payout ratio exceeded 100% of NII-per-share. This was because of the coronavirus pandemic inflicting a decline within the portfolio outcomes.
If funding earnings declines sooner or later, the dividend could be at risk of a discount. However, if the U.S. financial system avoids a recession and Horizon continues to see passable funding spreads, the dividend could possibly be maintained and even develop. To that finish, Horizon elevated its dividend final yr.
Associated: 3 Causes Why Firms Reduce Their Dividends (With Examples)
The corporate’s aggressive benefit lies in its experience in figuring out probably the most promising corporations in dangerous sectors, which requires skilled data and expertise past finance. Up to now, this perk has stood stable, as the corporate’s outcomes have outperformed the remainder of its friends, lots of which have been pressured to chop their distribution as a consequence of elevated market stress.
In an optimum situation, Horizon might proceed to pay its distribution of $1.35 yearly for the foreseeable future. Nevertheless, any BDC has an elevated threat of slicing its distribution, on condition that it’s required to distribute basically all of its earnings. Ought to Horizon’s monetary outcomes deteriorate, a dividend minimize is actually potential, because it occurred in 2016.
Remaining Ideas
Excessive dividend yields are sometimes an indication of elevated threat. On this case, there’s a appreciable threat that Horizon’s dividend could possibly be lowered sooner or later if its funding earnings deteriorated, which might seemingly happen in a deep recession.
Nevertheless, the outlook for Horizon is mostly constructive. It invests in know-how and healthcare, two steady industries with development potential. The corporate’s underwriting rules provide excessive yields and customarily protected lending situations, which assist internet funding earnings and, due to this fact, the dividend.
Horizon could possibly be a gorgeous high-dividend inventory for earnings buyers due to its 12.9% dividend yield, with the acknowledgment that the dividend could possibly be in danger within the occasion of a enterprise downturn.
Don’t miss the assets beneath for extra month-to-month dividend inventory investing analysis.
And see the assets beneath for extra compelling funding concepts for dividend development shares and/or high-yield funding securities.
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