Stellus Capital's Q4 2024: Navigating Contradictions in Leverage, Dividends, and Growth Pipeline

These are the key contradictions discussed in Stellus Capital Investment's latest 2024Q4 earnings call, specifically including: Leverage Strategy, Dividend Coverage, and Pipeline Activity:



Portfolio Growth:
- Stellus Capital Investment Corporation's portfolio reached a historic milestone of $1 billion for the first time, with $47 million in new funding as of the first quarter of 2025.
- This growth was driven by continued active investment in new portfolio companies and follow-on investments, as well as strategic equity realizations.

Equity Realizations and Co-Investment Strategy:
- The company recorded $5.5 million in equity gains in Q4 and expects to see more equity gains in 2025, with approximately $4 million to $5 million by June 30.
- The equity co-investment strategy is expected to provide meaningful uplift over time, with historical results indicating potential realizations in excess of 2x the cost basis.

Dividend and Earnings:
- Stellus declared a dividend for Q1 2025 at a rate of $0.40 per share, payable monthly, and expects this level to continue into the second quarter and potentially throughout the year.
- The dividend is supported by spillover income from previous years and is likely to be partially covered by earnings.

Leverage and Tariff Concerns:
- The company is operating at a lower leverage level than its target regulatory leverage of 1:1, but remains cautious about uncertainty in trade policies and tariffs.
- While the impact of tariffs on the portfolio is estimated to be up to 10%, it is not considered material at this time, and the company is adopting a wait-and-see attitude.

Pipeline and Investment Activity:
- Stellus has a robust pipeline with a platform of over $3 billion, seeing multiple deals per week.
- Investment activity includes both new transactions and follow-ons, with approximately 2/3 new transactions and 1/3 follow-ons or draws under delayed draw term loans (DDTLs).