Up to date on September thirteenth, 2022 by Quinn Mohammed
Horizon Know-how Finance (HRZN) has a present dividend yield of greater than 9.5%. Horizon’s excessive dividend yield makes it extraordinarily enticing at first look. The S&P 500 Index, on common, gives only a 1.5% dividend yield.
Not solely does it have a really excessive dividend yield, nevertheless it additionally makes its funds every month. Horizon is one among solely 49 month-to-month dividend shares.
You’ll be able to obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yield and payout ratio) by clicking on the hyperlink under:
Horizon’s yield is close to the highest of the record of month-to-month dividend shares, a gaggle that features many different high-yield securities like REITs and different Enterprise Improvement Firms.
This text will focus on Horizon’s enterprise mannequin and whether or not it’s an interesting inventory for revenue buyers.
Enterprise Overview
Horizon Know-how Finance is a Enterprise Improvement Firm, or BDC. These are corporations that make investments in privately held corporations.
Horizon makes its returns by way of investments in corporations by straight originated senior secured loans and, to a smaller extent, capital appreciation potential by warrants.
It supplies debt financing to early-stage corporations throughout three trade teams:
- Life Science
- Know-how
- Healthcare Data & Companies
Life science corporations primarily embrace biotechnology, medical gadgets, and specialty prescribed drugs.
Know-how investments are usually made in cloud computing, wi-fi communications, cyber safety, information analytics and storage, web, software program, and extra.
Healthcare data consists of diagnostics, medical information, and affected person administration software program suppliers.
A breakdown of Horizon’s portfolio is as follows:
Supply: Investor Presentation
The portfolio is closely weighted within the life science and know-how teams, however even inside these teams, industries are extremely diversified.
As well as, the corporate has a good mixture of secure and rising corporations, respectively, in its portfolio, to supply a mixture of development and security in its lending.
Horizon views potential investments by a long-term lens. It invests in corporations which have development potential, robust administration groups, superior know-how, and/or helpful mental property.
As of the tip of June, Horizon had a internet asset worth of $11.69 per share. The share worth at the moment trades at a premium to internet asset worth per share.
Horizon has a sound funding philosophy. It additionally has a high-quality mortgage portfolio that ought to present the corporate with development going ahead.
Development Prospects
On August 2nd, 2022, Horizon reported second-quarter outcomes for the interval ending June thirtieth, 2022. Whole funding revenue grew by 38% year-over-year to $18.6 million. This was as a consequence of development in curiosity revenue on investments ensuing from a rise within the common dimension of the debt funding portfolio. Web funding revenue per share (NIIPS) grew to $0.35, 4 cents greater in comparison with Q2 2021.
The mismatch in development to the full revenue and revenue per share was because of the extra share issuances that happened to fund the corporate’s portfolio growth. Web asset worth (NAV) per share got here in at $11.69, in comparison with $11.68 within the earlier quarter.
In actual fact, after paying its month-to-month distributions, Horizon’s undistributed spillover revenue as of December thirty first was $0.53 per share, indicating a substantial money cushion.
The portfolio remained comparatively secure, holding 91 companies on the finish of the quarter. Administration reassured buyers of dividend stability going ahead by declaring its three ahead month-to-month dividends at a fee of $0.10. We’ve elevated our forecast for FY 2022 internet funding revenue per share to $1.35 from $1.28.
Horizon additionally has a rising and large addressable market.
Supply: Investor Presentation
Horizon sees a $49 billion addressable market in opposition to its present portfolio of $578 million. This could present a wealth of alternatives for Horizon, and it may due to this fact choose the perfect alternatives within the coming years.
Dividend Evaluation
Horizon at the moment pays a month-to-month dividend of $0.10 per share. The annualized dividend payout of $1.20 represents a yield of 9.6%, primarily based on Horizon’s present worth. This demonstrates why BDCs are a well-liked funding for revenue buyers, significantly one which has a yield as excessive as Horizon.
Nevertheless, abnormally excessive dividend payouts could be decreased if the issuing firm encounters monetary problem. That stated, Horizon nonetheless gives a excessive yield, which may very well be very interesting for revenue buyers.
Web funding revenue for 2022 is anticipated to succeed in $1.35 per share, which equates to a payout ratio of 89%. That is an enchancment from 2020, when the payout ratio exceeded 100% of NII-per-share, because the coronavirus pandemic triggered a decline within the portfolio outcomes.
If funding revenue declines sooner or later, the dividend can be at risk of a discount. Alternatively, if the U.S. economic system avoids a recession, and Horizon continues to see success from its investing methods, the dividend may very well be maintained. To that finish, Horizon did preserve its dividend funds all through 2020 and in 2021.
Associated: 3 Causes Why Firms Reduce Their Dividends (With Examples)
The corporate’s aggressive benefit lies in its experience to establish essentially the most promising corporations in dangerous sectors, which requires skilled information and expertise past finance. Thus far, this perk has stood strong, as the corporate’s outcomes have outperformed the remainder of its friends, lots of which had been compelled to chop their distribution as a consequence of elevated market stress.
In an optimum state of affairs, Horizon might proceed to pay its distribution of $1.20 yearly for the foreseeable future. Nevertheless, any BDC has an elevated danger of chopping its distribution provided that it’s required to distribute basically all of its revenue. Ought to Horizon’s monetary outcomes deteriorate, a dividend minimize is actually potential, as occurred in 2016.
Ultimate Ideas
Excessive dividend yields are sometimes an indication of elevated danger. On this case, there’s a appreciable danger that Horizon’s dividend may very well be decreased sooner or later if its funding revenue deteriorated, which might probably happen in a deep recession.
Nevertheless, the outlook for Horizon is mostly constructive. It invests in know-how and healthcare, two secure industries with development potential. The corporate’s underwriting rules supply excessive yields and usually secure lending situations, which assist internet funding revenue and due to this fact, the dividend.
Horizon may very well be a horny excessive dividend inventory for revenue buyers due to its 9.6% dividend yield, with the acknowledgment that the dividend may very well be in danger within the occasion of a enterprise downturn.
If you’re concerned about discovering extra high-quality dividend development shares appropriate for long-term funding, the next Certain Dividend databases will likely be helpful:
The most important home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month:
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