Niska Gas Storage Partners, LLC (NYSE:NKA) owns and develops midstream energy assets in the United States and Canada. It is the largest independent owner and operator of natural gas storage in North America. It is also struggling after this last quarter, due to maintenance and repair issues at some of its facilities.
This spooked investors because it pushed Cash Available for Distribution into negative numbers. The company still paid its quarterly dividend, but I think investors are worried that it cannot pay the full $1.40 (24.2% yield) going forward on an annual basis.
The company is evaluating its engineering issues and said it didn’t believe they would warrant large repair expenses.
So in this case, you have a choice. If you think things will work out, then you buy at $5.66 (which is 67% off its high) and assume that a dividend cut is priced in. If you want to wait and see, you could do so, possibly miss some upside, but then climb back into a company that has historically done well.
Gladstone Investment Corporation (NASDAQ:GAIN) is part of a sector that is under stress –Business Development Companies. These are companies that draw down debt, then turn around and lend it to small and midsized companies that are in need of secondary market-growth capital at mezzanine-level rates (low teens). They often take equity positions as well.
The fear among investors is that rates will rise and squeeze BDC margins. That is certainly possible, but as with Manhattan Bridge Capital, BDCs have some pricing power because they operate in the secondary market with limited competition. In addition, any actual increase in rates still seems to be quite some time off.
BDCs must pay 90% of income to shareholders, which GAIN does on a monthly basis. The yield is presently 8.6% and the $7.31 share price seems to have most of the risk baked in.
Lawrence Meyers does not own any security mentioned.
This article is brought to you courtesy of Lawrence Meyers from Wyatt Investment Research.