FS KKR Capital Announces 2026 Dividend Strategy Update Amid Rising Nonaccruals

FS KKR Capital Corp reported Q2 2025 earnings, with net investment income of $0.62 per share and adjusted net investment income of $0.60 per share. CEO Michael Craig Forman noted a 6.2% decline in net asset value per share from $23.37 to $21.93. The firm also signaled a 2026 dividend strategy update as nonaccruals rose to 5.3% of the portfolio.

FS KKR Capital Corp (FSK) reported its second quarter 2025 earnings on August 7, 2025, revealing mixed performance and significant challenges ahead. The company's net investment income (NII) came in at $173 million, or $0.62 per share, down from $187 million in the previous quarter. Adjusted NII, which excludes certain non-recurring items, was $168 million, or $0.60 per share [3].

CEO Michael Craig Forman noted a 6.2% decline in net asset value (NAV) per share from $23.37 to $21.93, primarily due to net realized and unrealized losses of $1.36 per share during the quarter. The company's total distribution of $0.70 per share remained unchanged, but the adjusted NII coverage of the base dividend fell to 94%, raising concerns about dividend sustainability [3].

FSK's portfolio composition remains well-diversified, with senior secured investments comprising 64.1% of the total portfolio. The company originated approximately $1.4 billion in new investments during the quarter, while sales and redemptions totaled $1.65 billion, resulting in a positive net investment activity of $311 million. However, the portfolio's weighted average yield on accruing debt investments was 10.6%, and the non-accrual rate at fair value stood at 3.0%, indicating some credit quality concerns [3].

FSK's capital structure and liquidity position remain strong, with a net debt-to-equity ratio of 1.20x and $3.1 billion available through undrawn debt facilities, cash, and unsettled trades. The company closed a new 5-year $400 million bilateral lending facility with CIBC (TSX:CM) and amended its Senior Secured Revolver, increasing the total commitment to $4,700 million [3].

Looking ahead, FSK faces several challenges, including continued market volatility, potential yield compression in the lending market, and credit quality concerns. The company's ability to maintain its dividend at current levels will depend on its success in deploying capital into high-quality, yield-generating investments while managing credit risk effectively in an uncertain economic environment [3].

References:
[1] https://www.marketscreener.com/news/transcript-fs-kkr-capital-corp-q2-2025-earnings-call-aug-07-2025-ce7c5edfd18bf725
[2] https://www.gurufocus.com/news/3035077/fs-kkr-capital-corp-fsk-q2-2025-everything-you-need-to-know-ahead-of-earnings?mod=mw_quote_news&r=4bf001661e6fdd88d0cd7a5659ff9748
[3] https://za.investing.com/news/company-news/fs-kkr-capital-q2-2025-slides-nii-declines-nav-drops-amid-challenging-market-93CH-3824155