Shares of specialty finance company Oaktree Specialty Lending Corp. (OCSL) have climbed 31% over the last 12 months. OCSL’s financing solutions include first and second lien loans, unsecured and mezzanine loans, as well as preferred equity.
In the fourth quarter, OCSL’s revenue increased 46.3% year-over-year to $63.8 million, exceeding estimates by $12 million. Earnings per share at $0.16 came in ahead of expectations by $0.01. The net asset value (NAV) of the company increased to $7.28 per share from $6.49 per share a year ago. This increase was attributed to realized and unrealized gains on certain debt and equity investments coupled with undistributed net investment income.
The highest dividend stocks are always on savvy investors’ radars and OCSL has been steadily increasing its dividend. Notably, in fiscal 2021, the company increased its dividend level by 41%, and has a dividend yield of 7.15%.
The company’s upcoming earnings for the first quarter are expected on February 3. Consensus estimates point to earnings per share of $0.16 compared to the year-ago figure of $0.14.
With these developments in mind, let us take a look at the changes in OCSL’s key risk factors that investors should know.
Risk Factors
According to the TipRanks Risk Factors tool, Oaktree’s top risk category is Finance & Corporate, contributing 68% (compared to a sector average of 59%) to the total 69 risks identified. In its recent annual report, the company has added two key risk factors.
OCSL noted the loans where it expects to invest include financial maintenance covenants; however, the company also invests in covenant-lite loans to a lesser degree. These loans provide borrower companies more freedom to negatively impact lenders. Consequently, OCSl may have fewer rights against a borrower and a higher risk of loss on such investments.
OCSL also highlighted that some of its portfolio companies may see an adverse impact from inflation. If these companies are not able to pass on cost increases to customers, then their ability to service debts may be impacted. As a result, a projected future decrease in these companies’ results could mean a lower fair value of these investments for OCSL, thereby reducing its net assets resulting from operations.
Tracking Insiders
Keeping a tab on insiders stocks can provide timely insights for retail investors. According to TipRanks data on Insider Activity, insiders have sold Oaktree shares worth $11.1 million in the last three months, indicating a negative insider confidence signal for the stock based on 7 insider transactions in the last 3 months.
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