The Blackstone Secured Lending Fund (NYSE: BXSL) is a business development company, or BDC, that lends money to private firms. It is a subsidiary of the trillion-dollar asset manager Blackstone.
The company has $11.3 billion in assets, 99% of which are first lien senior secured debt. That means these loans are first in line to be paid back and they’re backed by collateral. As a lender, that’s the best position to be in.
The top three sectors in the Blackstone Secured Lending Fund’s portfolio are software (18%), healthcare providers and services (10%), and professional services (9%), so its investments are well diversified.
The stock pays a fat 10% yield. But does the “Blackstone” name mean the dividend is solid as a rock?
Let’s dig into the numbers to find out.
Since the company is a BDC, we’ll look at net investment income, or NII, as our measure of cash flow. NII is the amount of income a company generates from its investments after expenses are subtracted.
The Blackstone Secured Lending Fund has been growing its NII by double digits for several years in a row and has more than tripled its NII since 2020.
Last year, the company paid shareholders $438 million in dividends while generating $654 million in NII for a payout ratio of 67%. This year, it is expected to pay nearly $100 million more in dividends, but its NII is forecast to grow by $130 million, which would inch the payout ratio up to 68%.
Both payout ratio numbers are well within my comfort zone.
For most companies, I want to see payout ratios of 75% or lower. However, BDCs are required to pay out 90% or more of their profits in dividends, so I raised my payout ratio threshold for BDCs to 100% to give them a little more leeway. (Remember, profits – also known as net income – is not the same as net investment income. The BDC is not required to pay out 90% of its NII.)
Blackstone’s 67% and 68% payout ratios are fairly low relative to my 100% limit, which gives me plenty of reassurance about the company’s ability to pay the dividend.
The Blackstone Secured Lending Fund has only been around since 2018, so its dividend-paying history is short, but it did raise the dividend by 12% or more in each of the past two years. It currently pays a quarterly dividend of $0.77 per share for a yield of 10.1%.
So the company generates plenty of cash to afford its dividend, grows its cash flow every year by a meaningful amount, and has a short but strong history of dividend raises.
The only potential concern is its limited track record, but I’m not worried. This dividend is safe.
Dividend Safety Rating: A
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