Golub Capital BDC (NASDAQ: GBDC) and Capital Southwest (NASDAQ:CSWC) are both small-cap finance companies, but which is the superior investment? We will compare the two companies based on the strength of their dividends, analyst recommendations, risk, earnings, profitability, institutional ownership and valuation.
Valuation and Earnings
This table compares Golub Capital BDC and Capital Southwest’s revenue, earnings per share (EPS) and valuation.
|Gross Revenue||Price/Sales Ratio||Net Income||Earnings Per Share||Price/Earnings Ratio|
|Golub Capital BDC||$137.76 million||8.04||$82.28 million||$1.25||14.80|
|Capital Southwest||$35.13 million||8.71||$39.30 million||$1.01||18.74|
Golub Capital BDC pays an annual dividend of $1.28 per share and has a dividend yield of 6.9%. Capital Southwest pays an annual dividend of $1.12 per share and has a dividend yield of 5.9%. Golub Capital BDC pays out 102.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Capital Southwest pays out 110.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Golub Capital BDC is clearly the better dividend stock, given its higher yield and lower payout ratio.
Insider and Institutional Ownership
38.4% of Golub Capital BDC shares are owned by institutional investors. Comparatively, 56.3% of Capital Southwest shares are owned by institutional investors. 10.7% of Golub Capital BDC shares are owned by company insiders. Comparatively, 5.9% of Capital Southwest shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.
Volatility and Risk
Golub Capital BDC has a beta of 0.62, meaning that its stock price is 38% less volatile than the S&P 500. Comparatively, Capital Southwest has a beta of 0.25, meaning that its stock price is 75% less volatile than the S&P 500.
This is a summary of recent recommendations for Golub Capital BDC and Capital Southwest, as reported by MarketBeat.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|Golub Capital BDC||0||1||1||0||2.50|
Golub Capital BDC currently has a consensus target price of $20.50, indicating a potential upside of 10.81%. Capital Southwest has a consensus target price of $20.20, indicating a potential upside of 6.71%. Given Golub Capital BDC’s higher possible upside, equities research analysts clearly believe Golub Capital BDC is more favorable than Capital Southwest.
This table compares Golub Capital BDC and Capital Southwest’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|Golub Capital BDC||58.88%||8.11%||4.29%|
Golub Capital BDC beats Capital Southwest on 9 of the 16 factors compared between the two stocks.
Golub Capital BDC Company Profile
Golub Capital BDC, Inc. is a business development company and operates as an externally managed closed-end non-diversified management investment company. It invests in debt and minority equity investments in middle-market companies that are, in most cases, sponsored by private equity investors. The company seeks to invest in the United States. It primarily invests in senior secured, one stop, unitranche, second lien, subordinated and mezzanine loans of middle-market companies, and warrants.
Capital Southwest Company Profile
Capital Southwest Corporation is a business development company specializing in credit and private equity and venture capital investments in middle market companies, mezzanine, later stage, mature, late venture, emerging growth, buyouts, recapitalizations and growth capital investments. It does not invest in startups, publicly traded companies, real estate developments, project finance opportunities, oil and gas exploration businesses, troubled companies, turnarounds, and companies in which significant senior management is departing. In lower middle market, the firm typically invests in growth financing, bolt-on acquisitions, new platform acquisitions, refinancing, dividend recapitalizations, sponsor-led buyouts, and management buyouts situations. The investment structures are Unitranche debt, subordinated debt, senior debt, first and second lien debt, and preferred and common equity. The firm makes equity co-investments alongside debt investments, up to 20% of total check and only makes non-control investments. It prefers to invest in Industrial manufacturing and services, value-added distribution, healthcare products and services, business services, specialty chemicals, food and beverage, tech-enabled services and SaaS models. The firm seeks to invest in energy services and products, industrial technologies, and specialty chemicals and products. Within energy services and products, the firm seeks to invest in each segment of the industry, including upstream, midstream and downstream, excluding exploration and production with a focus on differentiated products and services, equipment and tool rental, consumable products, and drilling and completion chemicals. Within industrial technologies, it seeks to invest in automation and process controls, handling and packaging equipment, industrial filtration and fluid handling, measurement, monitoring and testing, professional tools, and sensors and instrumentation. Within and specialty chemicals and products, the firm seeks to invest in businesses that develop and manufacture highly differentiated chemicals and products including adhesives, coatings and sealants, catalysts and absorbents, cosmeceuticals, fine chemicals, flavors and fragrances, performance lubricants, polymers, plastics and composites, chemical dispensing and filtration equipment, professional and industrial trade consumables and tools, engineered solutions for HVAC, plumbing, and electrical installations, specified high performance materials for fire protection and oilfield applications. It may also invest in exceptional opportunities in building products. The firm seeks to invest in the United States. The firm seeks to make equity investments up to $5 million and debt investments between $5 million and $20 million and co-invest in transaction size upto $40 million. It prefers to invest in companies with revenues approaching above $10 million, profitable operations, historical growth rate of at least 15 percent per year, EBITDA between $3 million and $50 million. In addition to making direct investments, the firm allocates capital to syndicated first and second lien term loans in the upper middle market. Criteria for Upper Middle Market Syndicated 1st Lien is EBITDA Size more than $30 million, Closing Leverage greater than 4 times, investment hold size between $5 million and $7 million, investment yield greater than 6.5%. Criteria for Upper Middle Market Syndicated 2nd Lien is EBITDA Size more than $50 million, Closing Leverage greater than 6 times, investment hold size between $5 million and $7 million, investment yield greater than 9%. It prefers to take a majority and minority stake. The firm has the flexibility to hold investments for very long period in its portfolio companies. It may also invest through warrants. The firm prefers to take Board participation in its portfolio companies. Capital Southwest Corporation was founded on April 19, 1961 and is based in Dallas, Texas.
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