The “BDC” business model operates exceptionally well in the current interest rate environment, and the potential of Oaktree Specialty Lending Corporation (OCSL) is too compelling to pass on, highlights Tim Plaehn, editor of The Dividend Hunter.
I recently heard the word “malaise” used to describe the investment markets. The Mayo Clinic provides this definition: “A general sense of being unwell, often accompanied by fatigue, diffuse pain, or lack of interest in activities.”
I think that’s an accurate description of the mental state of investors and traders. Of course, we Dividend Hunters don’t have those concerns. It’s a great feeling to track our dividend income and watch it grow quarter after quarter.
That brings me to a new business development company (BDC) I like: OCSL. The Oaktree website provides an excellent description of the BDC and its operations:
A specialty finance company dedicated to providing customized, one-stop credit solutions to companies with limited access to public or syndicated capital markets. We seek to generate current income and capital appreciation by providing companies with flexible and innovative financing solutions including first and second lien loans, unsecured and mezzanine loans, and preferred equity.
A couple of recent corporate actions increased the investment appeal of Oaktree Specialty Lending.
In September 2022, Oaktree announced they would merge the private investment fund Oaktree Strategic Income II, Inc. into Oaktree Specialty Lending. The merger was finalized in January 2023. The combination increased the company’s portfolio by about a third. The added size allows for more diversification in the portfolio and access to lower-cost debt.
At the completion of the merger, Oaktree Specialty Lending completed a one-for-three reverse stock split. Stock splits, reverse or otherwise, do not affect the dollar value of an investment but do change the price at which the shares trade.
With the reverse split, OCSL went from $7.00 per share to $21.00. The higher share price makes the stock more widely attractive, as there are investment funds and money managers that stay away from single-digit stock prices.
Oaktree Specialty Lending has also proven itself to be a top-tier BDC for dividend growth. The recent corporate actions should allow the company to continue to grow the dividend rate. I expect the dividend growth to moderate to single digits. Combining that with a recent 10% yield, an OCSL investment should perform very well.
Recommended Action: Buy OCSL.