THL Credit (NASDAQ: TCRD) and American Capital Senior Floating (NASDAQ:ACSF) are both small-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their dividends, profitability, valuation, analyst recommendations, earnings, risk and institutional ownership.

Insider & Institutional Ownership

45.6% of THL Credit shares are held by institutional investors. Comparatively, 31.0% of American Capital Senior Floating shares are held by institutional investors. 0.8% of THL Credit shares are held by insiders. Comparatively, 0.2% of American Capital Senior Floating shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Profitability

This table compares THL Credit and American Capital Senior Floating’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
THL Credit 29.81% 10.22% 5.66%
American Capital Senior Floating 119.98% 6.97% 3.69%

Dividends

THL Credit pays an annual dividend of $1.08 per share and has a dividend yield of 11.6%. American Capital Senior Floating pays an annual dividend of $1.16 per share and has a dividend yield of 9.9%. THL Credit pays out 145.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. American Capital Senior Floating pays out 37.3% of its earnings in the form of a dividend.

Analyst Ratings

This is a summary of recent ratings for THL Credit and American Capital Senior Floating, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
THL Credit 0 5 2 0 2.29
American Capital Senior Floating 0 0 0 0 N/A

THL Credit presently has a consensus price target of $11.00, suggesting a potential upside of 17.90%. Given THL Credit’s higher probable upside, equities research analysts clearly believe THL Credit is more favorable than American Capital Senior Floating.

Risk and Volatility

THL Credit has a beta of 1.07, indicating that its share price is 7% more volatile than the S&P 500. Comparatively, American Capital Senior Floating has a beta of 1.32, indicating that its share price is 32% more volatile than the S&P 500.

Earnings & Valuation

This table compares THL Credit and American Capital Senior Floating’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
THL Credit N/A N/A N/A $0.74 12.61
American Capital Senior Floating N/A N/A N/A $3.11 3.76

American Capital Senior Floating is trading at a lower price-to-earnings ratio than THL Credit, indicating that it is currently the more affordable of the two stocks.

Summary

THL Credit beats American Capital Senior Floating on 7 of the 12 factors compared between the two stocks.

About THL Credit

THL Credit, Inc. is an externally managed, non-diversified closed-end management investment company. The Company’s investment objective is to generate both current income and capital appreciation, primarily through investments in privately negotiated debt and equity securities of lower middle market companies. The Company is a direct lender to lower middle-market companies and invests primarily in directly originated first lien senior secured loans, including unitranche investments. In certain instances, it also makes second lien secured loans and subordinated, or mezzanine, debt investments, which may include an associated equity component, such as warrants, preferred stock or similar securities, and direct equity investments. Its first lien senior secured loans may be structured as traditional first lien senior secured loans or as unitranche loans. The Company’s investment activities are managed by THL Credit Advisors LLC.

About American Capital Senior Floating

American Capital Senior Floating, Ltd. is a non-diversified closed-end investment management company. The Company’s investment objective is to provide attractive, risk-adjusted returns over the long term primarily through current income while seeking to preserve its capital. It manages a leveraged portfolio composed primarily of diversified investments in first lien and second lien floating rate loans principally to the United States-based companies (collectively, Senior Floating Rate Loans or SFRLs), which are referred to as leveraged loans. It invests in equity tranches of collateralized loan obligations (CLOs), which are securitized vehicles collateralized primarily by SFRLs, and it may invest in debt tranches of CLOs. In addition, it may selectively invest in loans issued by middle market companies, mezzanine and unitranche loans and high yield bonds. It has over 80% of its assets in Senior Floating Rate Loans. The Company is managed by American Capital ACSF Management, LLC.

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