Improving Dividend Safety at This 12.2% Yielder?

Imagine there’s a company offering a double-digit dividend yield and it has a rock-solid business to back its payout. What do you think would happen? Well, given the current low-yield environment, income investors would run toward a safe double-digit yielder. And as investors buy the company’s shares, they would bid up the stock price. Due to the inverse relationship between dividend yield and stock price, the buying activity would cause the company’s yield to drop. So before long, it would no longer be an ultra-high yielder. So if you see a company offering a yield north of 10%, chances are it’s not exactly perfect.

Case in point: THL Credit, Inc. (NASDAQ:TCRD) is a business development company (BDC) headquartered in Boston. With a quarterly dividend rate of $0.21 per share and a share price of $6.75, the company offers a staggering annual yield of 12.2%. And like I said, most ultra-high yielders are not perfect. While THL Credit seems to be offering very generous dividends, its current payout is actually the result of a dividend cut. Last year, TCRD stock had a quarterly dividend rate of $0.27. At the end of the day, conservative income investors would probably want to see consistent dividend coverage before making any investment decision. But if THL Credit, Inc. can keep outearning its payout, its massive 12.2% yield would be worth a look.

Source: Income Investors

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