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

Analyst Recommendations

This is a breakdown of recent recommendations for Stellus Capital Investment Corporation and Fidus Investment Corporation, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Stellus Capital Investment Corporation 0 1 2 0 2.67
Fidus Investment Corporation 0 2 1 0 2.33

Stellus Capital Investment Corporation currently has a consensus price target of $15.00, suggesting a potential upside of 12.78%. Fidus Investment Corporation has a consensus price target of $17.33, suggesting a potential upside of 8.81%. Given Stellus Capital Investment Corporation’s stronger consensus rating and higher possible upside, equities analysts clearly believe Stellus Capital Investment Corporation is more favorable than Fidus Investment Corporation.

Volatility and Risk

Stellus Capital Investment Corporation has a beta of 0.56, indicating that its share price is 44% less volatile than the S&P 500. Comparatively, Fidus Investment Corporation has a beta of 1.12, indicating that its share price is 12% more volatile than the S&P 500.

Earnings & Valuation

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

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Stellus Capital Investment Corporation N/A N/A N/A $2.12 6.27
Fidus Investment Corporation N/A N/A N/A $1.93 8.25

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

Profitability

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

Net Margins Return on Equity Return on Assets
Stellus Capital Investment Corporation 68.17% 10.06% 5.01%
Fidus Investment Corporation 62.46% 9.08% 5.56%

Institutional and Insider Ownership

26.5% of Stellus Capital Investment Corporation shares are held by institutional investors. Comparatively, 30.7% of Fidus Investment Corporation shares are held by institutional investors. 4.2% of Stellus Capital Investment Corporation shares are held by company insiders. Comparatively, 1.3% of Fidus Investment Corporation shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Dividends

Stellus Capital Investment Corporation pays an annual dividend of $1.36 per share and has a dividend yield of 10.2%. Fidus Investment Corporation pays an annual dividend of $1.56 per share and has a dividend yield of 9.8%. Stellus Capital Investment Corporation pays out 64.2% of its earnings in the form of a dividend. Fidus Investment Corporation pays out 80.8% 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 is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Stellus Capital Investment Corporation beats Fidus Investment Corporation on 9 of the 13 factors compared between the two stocks.

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.

About Fidus Investment Corporation

Fidus Investment Corporation is a closed-end, non-diversified investment company. The Company provides customized debt and equity financing solutions to lower middle-market companies. The Company’s investment objective is to provide attractive risk-adjusted returns by generating both current income from its debt investments and capital appreciation from its equity-related investments. The Company typically invests in mezzanine debt, which includes senior subordinated notes and junior secured loans. The Company structures some of its debt investments as senior secured or unitranche loans. The Company’s equity securities typically consist of either a direct minority equity investment in common or preferred stock or membership/partnership interests of a portfolio company, or it may receive warrants to buy a minority equity interest in a portfolio company in connection with a debt investment. Its investment activities are managed by Fidus Investment Advisors, LLC, its investment advisor.

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