Financial Contrast: Kayne Anderson BDC (NYSE:KBDC) and Stellus Capital Investment (NYSE:SCM)

Stellus Capital Investment (NYSE:SCM) and Kayne Anderson BDC (NYSE:KBDC) are both small-cap finance companies, but which is the superior business? We will compare the two businesses based on the strength of their valuation, earnings, risk, analyst recommendations, dividends, institutional ownership and profitability.

Risk and Volatility

Stellus Capital Investment has a beta of 0.68, indicating that its stock price is 32% less volatile than the S&P 500. Comparatively, Kayne Anderson BDC has a beta of 0.23, indicating that its stock price is 77% less volatile than the S&P 500.

Profitability

This table compares Stellus Capital Investment and Kayne Anderson BDC’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Stellus Capital Investment	26.48%	10.28%	3.74%
Kayne Anderson BDC	39.74%	10.23%	5.15%

Valuation & Earnings

This table compares Stellus Capital Investment and Kayne Anderson BDC”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Stellus Capital Investment	$102.14 million	2.61	$27.05 million	$0.94	9.80
Kayne Anderson BDC	$235.82 million	3.89	$93.71 million	$1.33	10.31

Kayne Anderson BDC has higher revenue and earnings than Stellus Capital Investment. Stellus Capital Investment is trading at a lower price-to-earnings ratio than Kayne Anderson BDC, indicating that it is currently the more affordable of the two stocks.

Dividends

Stellus Capital Investment pays an annual dividend of $1.36 per share and has a dividend yield of 14.8%. Kayne Anderson BDC pays an annual dividend of $1.60 per share and has a dividend yield of 11.7%. Stellus Capital Investment pays out 144.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Kayne Anderson BDC pays out 120.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Insider and Institutional Ownership

13.2% of Stellus Capital Investment shares are held by institutional investors. 4.0% of Stellus Capital Investment shares are held by insiders. Comparatively, 3.2% of Kayne Anderson BDC shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Analyst Ratings

This is a breakdown of recent ratings for Stellus Capital Investment and Kayne Anderson BDC, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Stellus Capital Investment	0	3	0	0	2.00
Kayne Anderson BDC	0	1	3	0	2.75

Stellus Capital Investment currently has a consensus target price of $9.00, indicating a potential downside of 2.34%. Kayne Anderson BDC has a consensus target price of $15.00, indicating a potential upside of 9.41%. Given Kayne Anderson BDC’s stronger consensus rating and higher probable upside, analysts plainly believe Kayne Anderson BDC is more favorable than Stellus Capital Investment.

Summary

Kayne Anderson BDC beats Stellus Capital Investment on 11 of the 16 factors compared between the two stocks.

About Stellus Capital Investment

Stellus Capital Investment Corporation is a business development company specializing in investments in private middle-market companies. It invests through first lien, second lien, unitranche, and mezzanine debt financing, often with a corresponding equity investment. The fund prefers to invest in US and Canada. The fund seeks to invest in companies with an EBITDA between $5 million and $50 million.

About Kayne Anderson BDC

Kayne Anderson BDC Inc. is a business development company which invests primarily in first lien senior secured loans, with a secondary focus on unitranche and split-lien loans to middle market companies. Kayne Anderson BDC Inc. is based in CHICAGO.