Saratoga Investment: I'm Still Not Touching This ~14% Yielder
Saratoga Investment (SAR) offers a high dividend yield of around 14% and has delivered strong performance relative to its peers, supported by a focus on lower middle-market lending and high first-lien exposure. However, concerns persist over its elevated leverage, weak dividend coverage of 81%, and concentration risk in the SaaS sector. The stock trades at a premium P/NAV of 0.88x compared to the sector median of 0.76x, which may not be fully justified given the risks. Due to these factors, the author remains cautious and avoids investing in SAR despite its attractive yield.
- ▪Saratoga Investment (SAR) trades at a price-to-net asset value (P/NAV) ratio of 0.88x, above the sector median of 0.76x.
- ▪The company's dividend coverage was only 81%, raising concerns about sustainability amid rising debt costs and reliance on temporary repayment activity.
- ▪SAR maintains high leverage and has significant portfolio concentration in the SaaS sector, increasing risk exposure.
- ▪Despite consistent outperformance versus the BDC index (BIZD), the author sees insufficient margin of safety and chooses not to invest.
- ▪Saratoga’s portfolio benefits from strong lower middle-market (LMM) focus and high exposure to first-lien loans with low non-accrual rates.
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