PennantPark Floating Rate Capital: Avoid Dividend Amid Declining NAV Concerns

PennantPark Floating Rate Capital (NYSE:PFLT) is a solid company with an interesting portfolio and high dividend yield of around 12%. However, declining net asset value (NAV) concerns make it a tough case to support. Despite never issuing a special dividend, investors should exercise caution before investing.

PennantPark Floating Rate Capital (NYSE: PFLT) is a business development company (BDC) that has been a popular choice among income-focused investors due to its high dividend yield of around 12%. However, recent developments have raised concerns about the company's net asset value (NAV) and its long-term viability. This article explores the key factors that investors should consider before making a decision to invest in PFLT.

PFLT's business model revolves around borrowing funds at low interest rates and lending them to relatively high-risk companies at higher yields, creating a spread that contributes to its profitability [1]. The company's portfolio is diverse, consisting of a mix of credit facilities, which has historically provided a steady stream of income. However, the company's NAV per share has been declining over the past decade, which has been a significant concern for investors.

The NAV per share, which is a key metric for BDCs, has dropped by around 23% since PFLT went public in 2011. This decline has been a contributing factor to the stock's flat performance over the past decade, with losses of -28% and -9% over the past 10 and 52 weeks, respectively [2]. Despite this, the company's dividend yield has remained high and consistent, providing a total return of around 94% over the past decade. However, the dividend is not guaranteed and is at risk of being cut if the company's financial performance deteriorates.

The company's second-quarter results, released on June 19, 2025, raised further concerns. The NAV per share dropped to $11.07, a decrease of 2.4% from the previous quarter. The company's core net investment income of $0.28 per share also missed expectations by $0.04, despite a 39% year-over-year increase in total investment income [2]. The company's management has acknowledged that deal activity has slowed down due to trade issues and geopolitical factors, which could impact the company's ability to grow its portfolio and generate income.

Investors should also be aware of the company's leverage ratio, which is currently at 1.3x debt-to-equity, slightly below its target of 1.5x. While this indicates that the company has room to add more investments, it also suggests that the company is being cautious about its debt levels [2]. The company's liquidity position is strong, with $111.4 million in cash and a $462.1 million credit line, providing some flexibility to act if needed.

In conclusion, PennantPark Floating Rate Capital (PFLT) is a solid company with an interesting portfolio and a high dividend yield. However, the declining NAV per share and recent soft financial results raise concerns about the company's long-term viability. Investors should exercise caution before investing in PFLT and closely monitor the company's financial performance and NAV trends.

References:
[1] https://seekingalpha.com/article/4795157-2-bdcs-to-buy-before-rates-drop
[2] https://seekingalpha.com/article/4795930-pennantpark-floating-rate-capital-avoiding-this-dividend-powerhouse-amid-declining-nav-concerns