Daily Stock Pick for September 22, 2023

Although the Fed kept interest rates unchanged on Wednesday…

12 out of 19 Fed policymakers think one more rate hike this year would be appropriate – while the other seven favor keeping rates steady.

But the reason markets have reacted negatively to the Fed’s decision is that the Fed expects to keep rates “higher for longer”…

Meaning there will likely be fewer rate cuts than initially anticipated in 2024.

Now, keep in mind we’re still waiting for the full impact of the Fed’s latest decision to filter through the market…

So we’ll just have to wait and see how it goes.

But in the meantime – why not add a sweet stock that’s currently yielding over 11%…

Has very healthy dividend coverage levels…

And is actually benefiting from rates staying “higher for longer”?

If you want to target capital gains right now – get ready for a bumpy ride.

But if you want some steady high-yield income before the weekend hits…

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PennantPark Floating Rate Capital Ltd. (PFLT)

PFLT is a Business Development Company (BDC) – a type of entity we’ve featured quite a few times on this newsletter. To recap, BDCs are listed companies that invest in small and medium-sized enterprises, primarily via debt instruments.

And for BDCs that provide variable-rate debt financing, they can benefit from “higher for longer” interest rates. PFLT only provides variable-rate financing, which is why the average yield on its debt investments touched 12.4% in its latest quarter – a substantial step up from 8.5% a year earlier.

The flip side of higher yields is the potential stress it may place on PFLT’s borrowers – increasing the risk of defaults. Fortunately, the credit quality of PFLT’s portfolio looks sound. Its latest quarterly report revealed just 3 out of 130 portfolio companies had been placed on the nonaccrual list – only slightly up from two the year before.

PFLT’s ability to cover its dividend is also healthy – standing at 111% over the past four quarters.

Finally, it’s high yield – currently standing at 11.44% – has not been the result of a falling stock price. PFLT’s stock is only down about 5% for 2023 and less than 3% compared to a year ago.

In short, if you’re looking for steady double-digit dividend yield in view of the “higher for longer” rate environment – put PFLT on your radar now.

To your wealth,
Felix @ Ace of Investing