PennantPark Floating Rate Capital Is Paying Out 171% of Earnings and That's a Problem

"PFLT reported diluted EPS of $0.72 over the trailing twelve months. Against the $1.23 annual dividend, that gives an earnings payout ratio of 171%. The company is paying out significantly more than it earns. The recent earnings trend makes this worse. Net income fell 27.8% year-over-year from $91.8M to $66.4M in fiscal 2025. Even more alarming, Q1 2025 saw net income collapse to just $1.2M. That kind of volatility is dangerous for dividend sustainability."

"That's a positive. But realized losses of $14.3M and unrealized depreciation of $46.1M show portfolio stress. Leverage Is Climbing Fast The balance sheet adds another layer of risk. Total debt jumped to $1.78B in fiscal 2025, up 50.9% from the prior year. Meanwhile, shareholder equity grew only 22.5% to $1.07B. That 1.65x debt-to-equity ratio is aggressive for a BDC, especially with earnings under pressure. Cash of $122.7M doesn't provide much cushion against $184.6M in short-term debt."

PennantPark Floating Rate Capital invests in middle-market floating-rate senior secured loans as a business development company. Shares trade at $9.51 with a 13.2% dividend yield. Trailing twelve-month diluted EPS totaled $0.72 versus a $1.23 annual dividend, implying a 171% payout ratio. Net income declined 27.8% year-over-year to $66.4M in fiscal 2025 and fell to $1.2M in Q1 2025. Q4 2025 net investment income rose to $27.5M from $18.0M, yet realized losses of $14.3M and unrealized depreciation of $46.1M indicate portfolio stress. Total debt increased to $1.78B while shareholder equity grew to $1.07B, creating a 1.65x debt-to-equity ratio and limited short-term liquidity. Management cites stable NII and a joint venture with Hamilton Lane; the $0.1025 monthly dividend has been unchanged since June 2023.

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