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If 2022 scared you off growth stories, feel free to park your funds in FS KKR Capital Corp. (FSK), which makes a lot of money in the here and now — lending to mid-stage companies, explains Hilary Kramer, editor of GameChangers.

This is not "private equity". This is private credit, where the money goes into another company and then comes out again with interest. I fell in love with FSK a few years ago at $17. Since then, it’s paid $5 in dividends, handing us a steady 15% annualized yield without once making me worry about either the share price or the cash flow.

I see no indication that the yield is at risk. For one thing, the overwhelming majority of the company's customers are already profitable. This isn't venture capital where management makes an educated bet on an unproved business model and hopes it pays off.

These aren't all-or-nothing transactions. It's usually more about raising incremental funds to take the business to the next level — which means the odds of default, bankruptcy or other failure are fairly remote.

That's been true across the business cycle. The overwhelming majority (99.2%) of FSK customers pay their bills. Even if the economy freezes over, the majority of these loans are senior secured obligations, backed with real assets and given special treatment when things go wrong.

Management does its homework and will lend a hand to help underperforming portfolio companies turn their stories around. And management loves the current rate environment, finding opportunities on the yield curve that make it easier to make money on the spread. Most of the loans carry floating rates. Financing fees are climbing.

While the long-term future is never certain, the past decade has demonstrated that FSK will probably find a way to maintain at least a double-digit yield for at least the next year or two.

Lock it in now and don't worry about that piece of your portfolio for the foreseeable future. As for the long-term exit, a book value of $25 gives the stock plenty of upsides when we finally get tired of those quarterly checks.
 

About the Author

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. The Financial Times describes her as "A one-woman financial investment powerhouse" and The Economist distinguishes her as "One of the best-known investors in America." Ms. Kramer independently published newsletters including GameChangers, Value Authority, High Octane Trader, 2-Day Trader, IPO Edge, and Inner Circle. She is often quoted in publications such as the Wall Street Journal, New York Post, Bloomberg, and Reuters. Ms. Kramer is a frequent guest commentator on CNBC, CBS, Fox News, and Bloomberg, providing investment insight and economic analysis.

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