Investors in Trinity Capital (Nasdaq: TRIN) have gotten used to their dividends steadily increasing.

But can they rely on those payouts, or do they need to say a prayer that the dividend gods will continue to bless them? After all, maintaining a 14.7% yield sometimes requires needs a little divine intervention.

Trinity Capital is a business development company, or BDC, that lends money to venture capital-backed growth companies. It has $1.6 billion in assets under management and 163 investments in its portfolio, including…

• Technology-enabled lender Accept.inc
• Cellulosic sugar and ethanol producer Edeniq
• Online payment processing technology company Verifone.

Trinity went public in 2021, so it’s only been paying a dividend for a few years. But its track record – albeit short – is excellent.

It has raised the dividend 12 times in the past 13 quarters. In fact, the most recent quarter was the first time it did not boost the dividend.

In 2022 and 2023, the company also paid out several special dividends. The 14.7% yield is only based on the current $0.51 per share quarterly dividend, so if the dividend continues to climb or the company keeps paying special dividends, shareholders could see an even bigger yield.

As you likely know by now, cash flow is a vital part of my Safety Net criteria as well.

Since Trinity is a BDC, we measure its cash flow using a metric called net investment income, or NII. This is how much money the company brings in from its investments, minus its expenses.

Last year, Trinity brought in $90 million in NII and paid out $79 million in dividends for a payout ratio of 88%.

That’s well above my normal threshold of 75%, but for BDCs, I raise my limit to 100%. This is because BDCs are required by law to pay out 90% or more of their net income in dividends, so their payout ratios are often higher than other companies’. (Note that net income isn’t the same thing as net investment income, but the two are correlated.)

With that in mind, an 88% payout ratio is in my comfort zone for a BDC.

This year, however, the company is forecast to generate $115 million in NII and pay out $117 million in dividends, which would push the payout ratio to just over 100%.

That concerns me a little. If NII comes in much lower than expected but the dividend forecast is accurate, Trinity’s payout ratio will be too high for the company to sustain it over the long term.

But if that turns out not to be the case, then the dividend looks rock-solid…

Maybe even angelic.

Dividend Safety Rating: B

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