Golub Capital BDC plunges on dividend cut, earnings miss
Dividend reduced 15% to $0.33 per share as rates, spreads weigh on business development sector
Golub Capital BDC shares tumbled Wednesday after the business development company missed earnings expectations by a wide margin and slashed its dividend, reflecting mounting pressure from changing market conditions and financing costs.
The New York-based investment firm reported fiscal first-quarter earnings per share of $0.25, falling 33.5% short of analyst expectations for $0.376, according to a regulatory filing. Revenue of $207 million narrowly missed the $208.9 million consensus estimate.
The company reduced its quarterly dividend to $0.33 per share from $0.39, a 15% cut that management attributed to an "evolving outlook for rates, asset spreads, and financing costs." The reduction marks the first significant dividend adjustment for the $3.48 billion market-cap firm, which had previously maintained shareholder payouts through various market cycles.
Net asset value declined to $14.84 per share from $14.97 in the prior quarter, while unrealized losses widened to $0.12 per share from $0.02. The drop in NAV reflects challenging valuation dynamics across the credit market as higher interest rates have compressed spreads and increased borrowing costs for BDCs.
Business development companies like Golub Capital provide financing to middle-market companies and typically distribute most of their earnings to shareholders through dividends. The sector has faced pressure as rising interest rates have increased funding costs while potentially reducing the spreads on new loans and weakening portfolio company performance.
Golub Capital, which trades on NASDAQ under ticker GBDC, currently has a price-to-book ratio of 0.90, suggesting shares are valued below the company's stated asset value. The stock's 52-week range shows it has struggled against broader market headwinds, having traded between $11.70 and $14.80 over the past year.
Analysts remain cautious on the BDC sector more broadly as the Federal Reserve's rate trajectory creates uncertainty around net interest margins and loan demand. Golub Capital's dividend reduction may signal broader challenges for business development companies that have relied heavily on elevated yields to attract income-focused investors.
The company's forward price-to-earnings ratio stands at 9.16, with analysts maintaining a consensus target price of $15.00. However, the earnings miss and dividend cut could prompt downward revisions to those targets as investors reassess growth prospects in the current macro environment.
For shareholders dependent on the quarterly distributions, the dividend reduction represents a significant reduction in income. The previous annualized dividend of $1.56 per share yielded approximately 11.7% at recent price levels, making it one of the more attractive yield plays in the financial sector. The new annualized rate of $1.32 per share will reduce that yield accordingly.
The earnings pressure comes despite Golub Capital's historically strong operational margins. The company reported an operating margin of 78.6% over the trailing twelve months and a profit margin of 43.2%, suggesting operational efficiency remains intact even as market headwinds mount.