Stellus Capital Investment Does Good Business & Monthly Returns

This week's slot in the Safari portfolio is reserved for the financial services sector.

That sector includes nineteen industries all related to managing money. Industries include: asset management; banks either global or from any of seven regions, capital markets, credit services, financial exchanges, insurance in six specializations, savings banks, and specialty finance.

Today I'm reviewing an asset management firm that is an externally managed, non-diversified business development company (or BDC). The company is Stellus Capital Investment Corporation. It's trading ticker symbol is SCM .

Its investment activities are managed by Stellus Capital Management, which is investing in middle market companies valued at $5 to $50 million in earnings. The investments vary from liens, to unitranche, to debt financing, along with equity components. SCM was first traded in November 2012 and is headquartered in Houston, TX.

Three keys evaluate dividend stocks and funds like SCM: 

(1) Price

(2) Dividends

(3) Returns

SCM Price

Stellus Capital Investment Corporation's price at Thursday's close was $13.17 per share. The firm has positive momentum. Just a year ago its price was $12.05. That's a gain of $1.12 in the past year. Can SCM do as well in the coming year?  If it does its price would increase to $14.29, or 8.5% 

SCM Dividends

The  company's most recent monthly dividend was $0.113 declared in October, to be paid in January  The dividend equates to $0.113 x 12 or $1.356 annually.

At Thursday's closing price of $13.17 per share the annual yield from $1.356 showed as 10.3%.

Are Gains Ahead For SCM?

Adding the dividend of $1.356 to the $1.12 potential upside from a repeat of 2017's price performance projects a possible $2.48 gross gain.  

Note that six analysts follow SCM. Three say buy, one says SCM will outperform,  and two say hold. The six analyst estimate a target price at $14.25 next year or four cent less than year over year figure I calculated at $14.29 

Calculating potential net gains for SCM depends on how many shares are bought. A $1,000.00 budget amount used to buy shares at SCM's last $13.17 closing price would let us purchase 76 shares. 

Those 76 shares will be hit with a broker fee of about $5 at purchase and another $5 at sale (for a total of $10 to get any gains). Each share carries a brokerage cost of about $0.13.

Plotting Returns For SCM

Subtracting the $0.13 brokerage cost from the $2.48 gross gain shows net gains to 2018 of $2.35

X 76 shares 

= $178.60

or about a 18% net on our $1,000.92 investment.

Therefore, Stellus Capital Investment Corporation (whose ticker symbol is SCM), shows a possible 18% gain by my simple momentum calculation and included in the take is a 10% annual dividend yield.

These forward looking numbers are conjecture based on past year performance. The actual results remain to be seen.  They could turn out to move lower. More study is required for you to determine if Stellus Capital Investment Corporation (SCM) is worth your time and money.