Golub Capital BDC (NASDAQ: GBDC) and Stellus Capital Investment Corporation (NYSE:SCM) are both small-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, valuation, profitability, institutional ownership, earnings, risk and analyst recommendations.

Volatility and Risk

Golub Capital BDC has a beta of 0.69, suggesting that its stock price is 31% less volatile than the S&P 500. Comparatively, Stellus Capital Investment Corporation has a beta of 0.56, suggesting that its stock price is 44% less volatile than the S&P 500.

Profitability

This table compares Golub Capital BDC and Stellus Capital Investment Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Golub Capital BDC 53.62% 7.86% 3.95%
Stellus Capital Investment Corporation 68.17% 10.06% 5.01%

Institutional and Insider Ownership

41.6% of Golub Capital BDC shares are owned by institutional investors. Comparatively, 26.5% of Stellus Capital Investment Corporation shares are owned by institutional investors. 2.4% of Golub Capital BDC shares are owned by company insiders. Comparatively, 4.2% of Stellus Capital Investment Corporation shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Dividends

Golub Capital BDC pays an annual dividend of $1.28 per share and has a dividend yield of 7.0%. Stellus Capital Investment Corporation pays an annual dividend of $1.36 per share and has a dividend yield of 10.1%. Golub Capital BDC pays out 96.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Stellus Capital Investment Corporation pays out 64.2% of its earnings in the form of a dividend. Stellus Capital Investment Corporation is clearly the better dividend stock, given its higher yield and lower payout ratio.

Earnings & Valuation

This table compares Golub Capital BDC and Stellus Capital Investment Corporation’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Golub Capital BDC N/A N/A N/A $1.33 13.71
Stellus Capital Investment Corporation N/A N/A N/A $2.12 6.34

Stellus Capital Investment Corporation is trading at a lower price-to-earnings ratio than Golub Capital BDC, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a summary of recent recommendations and price targets for Golub Capital BDC and Stellus Capital Investment Corporation, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Golub Capital BDC 0 4 0 0 2.00
Stellus Capital Investment Corporation 0 1 2 0 2.67

Golub Capital BDC currently has a consensus target price of $19.00, suggesting a potential upside of 4.17%. Stellus Capital Investment Corporation has a consensus target price of $15.00, suggesting a potential upside of 11.61%. Given Stellus Capital Investment Corporation’s stronger consensus rating and higher possible upside, analysts clearly believe Stellus Capital Investment Corporation is more favorable than Golub Capital BDC.

Summary

Stellus Capital Investment Corporation beats Golub Capital BDC on 10 of the 13 factors compared between the two stocks.

About Golub Capital BDC

Golub Capital BDC, Inc. is an externally managed, non-diversified, closed-end, management investment company. The Company’s investment objective is to generate current income and capital appreciation by investing primarily in senior secured and one stop loans of the United States middle-market companies. It may also selectively invest in second lien and subordinated loans of, and warrants and minority equity securities in the United States middle-market companies. The Company seeks to create a portfolio that includes primarily senior secured and one stop loans by primarily investing in the securities of the United States middle-market companies. It generally invests in securities that have been rated below investment grade by independent rating agencies or that would be rated below investment grade if they were rated. The Company’s investment activities are managed by its investment advisor, GC Advisors LLC (GC Advisors).

About Stellus Capital Investment Corporation

Stellus Capital Investment Corporation is a closed-end, non-diversified management investment company. The Company originates and invests primarily in private middle-market companies through first lien, second lien, unitranche and mezzanine debt financing, with corresponding equity co-investments. The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation. It invests in various sectors, such as business services, energy, general industrial, government services, healthcare, software and specialty finance. Its investment advisor is Stellus Capital Management, LLC (Stellus Capital Management). Stellus Capital Management is responsible for analyzing investment opportunities, conducting research and performing due diligence on investments, negotiating and structuring the Company’s investments, originating prospective investments, and monitoring its investments and portfolio companies on an ongoing basis.

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