Saratoga Investment Corp. (SAR): Why This Extreme Dividend Stock Should Be on Your Radar Now

Saratoga Investment Corp. (SAR), a business development company (BDC), has been making waves in the investment community with its attractive dividend yield and strong financial performance. With a dividend yield of 11.61% and a history of consistent dividend growth, SAR is an appealing option for income-oriented investors. In this article, we will explore the reasons why SAR is an attractive investment opportunity and why you should consider adding it to your portfolio now.

Attractive Dividend Yield and Growth

SAR's dividend yield of 11.61% is significantly higher than the average dividend yield of S&P 500 stocks, which was around 1.5% in 2025. This high dividend yield is a result of the company's high dividend payout, low stock price, and BDC structure, which requires SAR to distribute at least 90% of its taxable income to shareholders in the form of dividends. Additionally, SAR has a history of dividend growth, with the annualized dividend per share increasing from $0.70 in 2023 to $0.74 in 2024, reflecting a 5.7% increase.

Strong Financial Performance and Earnings Power

SAR's strong financial performance is evident in its adjusted net investment income (NII) per share, which has grown significantly from $0.98 in 2023 to $1.08 in 2024. This growth in earnings power supports the company's high dividend payout and indicates that SAR is well-positioned to maintain and potentially increase its dividend in the future. Additionally, SAR has consistently overearned its dividend, with the dividend being covered by adjusted NII. In 2024, the dividend of $0.74 per share is covered by adjusted NII of $1.08 per share, implying a coverage ratio of 1.46x.

Portfolio Quality and Resilience

SAR's portfolio has shown resilience, with a high-quality nature and balance, even in the current economic environment. The company has resolved challenges in four portfolio companies over the past year through two sales and two restructurings, demonstrating its ability to manage risks effectively. Additionally, SAR's core non-CLO portfolio was marked down by just $1.4 million in the quarter ended November 30, 2024, but this was offset by net realized gains of $1.2 million and escrow realized gains of $0.7 million, resulting in a net reduction in portfolio value related to marks of $0.1 million.

Capital Raise and Strong Balance Sheet

SAR has raised significant capital, including $77.5 million in long-term, fixed-rate, callable capital in 2023, and over $48 million in new equity at or above net asset value in 2024. This capital raise has strengthened the company's balance sheet, reduced regulatory leverage, and supported strong originations, further enhancing the sustainability of its dividend payout.

Investment Opportunity

Given its attractive dividend yield, strong financial performance, portfolio quality, and capital raise, Saratoga Investment Corp. (SAR) is an appealing investment opportunity for income-oriented investors. The company's high dividend yield, dividend growth, and strong earnings power make it an attractive option for those looking to generate steady income from their investments. Additionally, SAR's focus on healthcare and biotech, combined with its strong underwriting standards and experienced management team, contributes to the resilience and long-term growth potential of its portfolio.

In conclusion, Saratoga Investment Corp. (SAR) is an attractive investment opportunity for income-oriented investors, with its high dividend yield, strong financial performance, and portfolio resilience. The company's focus on healthcare and biotech, combined with its strong underwriting standards and experienced management team, contributes to its long-term growth potential. With its attractive dividend yield and strong earnings power, SAR is a compelling investment option for those looking to generate steady income from their investments.