We’ve been holding Business Development Company PennantPark Investment Corporation (PNNT) in our High Income Portfolio since October of last year on the view that its unusually low valuation of around 70% does not recognize its strong historic returns, its decent portfolio quality and its potential dividend upside given its strategy of rotating into higher income-producing assets.
Q4 results suggest this thesis is beginning to play out as the company has delivered a 2.6% quarterly increase in the NAV (not including the dividends), an 11% rise in net income, an a dividend increase to $0.14 from $0.12 for a 7.8% yield. Over the last 2 quarters, the company has delivered a total NAV return of around 8% or 16% annualized – quite a feat when most income securities are struggling just to stay in the green. Not only that but PNNT has also outpeformed the sector.
A bump in leverage and a rotation into secured loans have boosted the company’s income generating profile and there is more to come here in our view with additional dividend raises likely in the pipeline over the coming quarters.
Over the longer-term the company has put up a near 10% total NAV returns per annum and continues to trade at one of the cheapest valuations in the sector. As the company continues to deliver on its income-generating strategy, its valuation will be forced to move higher in response with its rising yield. We continue to stay long PNNT.
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