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July 23, 2013 – Comments (3) | RELATED TICKERS: FSC

Greetings my fellow Foxies.

Our featured stock is Fifth Street Finance Corp, picked by my brother from another Mother fireman9119ca.

The Fireman picked FSC @ $10.42 on 8-22-12, which led to a stock gain of +15.5% on Caps.

But that's not the story of this stock, the story is the consistent monthly dividend of .096 pr/sh. It allows the Fireman to purchase a case of beer every single month, and we all know which kind of beer tastes the best... that's right- FREE BEER.

From the website-

Fifth Street is an alternative lender. In our simplest form, we are like a publicly-traded mutual fund designed to lend to small and mid-sized private U.S. businesses. At times, we may also take an equity stake in these businesses.

Like a fund, we maintain a diversified portfolio, but in a tax-favored structure called a Business Development Company (“BDC”). BDCs were created in 1980 by the U.S. Congress to stimulate lending in the U.S. and enable public investors to invest in private, growing businesses—companies that might otherwise find it difficult to access capital.

The Distinctive BDC

In order to qualify as a BDC, a number of conditions must be met. The three main ones include:

Income distribution:

Generally speaking, BDCs are “pass-through” vehicles, meaning they don’t pay corporate income taxes if they pay out to shareholders at least 90% of their taxable annual net income. This structure enables BDCs to pay shareholders a high level of dividends that are only taxed once instead of twice.

Diversification:

Congress requires BDCs to remain sufficiently diversified in order to protect shareholders from excessive risks. For example, more than half of a BDC’s portfolio must be in investments that represent less than 5% of total assets.

Hands-on management:

Generally speaking, BDCs are “pass-through” vehicles, meaning they don’t pay corporate income taxes if they pay out to shareholders at least 90% of their taxable annual net income. This structure enables BDCs to pay shareholders a high level of dividends that are only taxed once instead of twice.

A Virtuous Cycle

As a BDC, Fifth Street helps small and mid-sized businesses grow while providing tax advantages and consistent, healthy dividends to our investors. Here’s how:

1.

An investor buys a share of Fifth Street, which represents a piece of our high-quality, diverse portfolio of private middle market companies.

2.

Fifth Street makes prudent investments in established companies to help them expand and reach the next level. Many of these companies have outgrown their local community
bank, but are still overlooked by larger lending institutions or the capital markets. This creates inefficiencies.

3.

Companies pay Fifth Street fees, interest income on the loans, or potential capital gains in the case of equity investments. In turn, Fifth Street passes these back to its shareholders in the form of dividends after interest expenses and fees.

4.

The dividends are high due to the BDC requirement that Fifth Street distribute at least 90% of its net income. High dividends also reflect the higher rates of interest that middle market companies pay because they are an underserved market segment—not because they have a lower likelihood of repaying their loans.

Small and mid-sized businesses receive expansion capital and managerial assistance is made available, while investors enjoy stable, high-yielding dividends and access to an attractive asset class with liquidity and diversification.

 

Disclosure-

I purchased  small amounts of FSC with the money I manage for my parents, not large at all, just like the fireman enough for a case of beer. Now since they're not big drinkers. Dividends get reinvested, should work out to a nice supplemental income in a short period of time.

STAY FOXY MY FRIENDS>>>

 

 

 

3 Comments – Post Your Own

#1) On July 23, 2013 at 9:30 PM, HarryCaraysGhost (99.60) wrote:

http://www.youtube.com/watch?v=moAZ3AsyhLU

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#2) On July 23, 2013 at 9:43 PM, Mega (99.97) wrote:

"But that's not the story of this stock, the story is the consistent monthly dividend of .096 pr/sh. It allows the Fireman to purchase a case of beer every single month, and we all know which kind of beer tastes the best... that's right- FREE BEER."

Woah! I never thought of it like that. This might be the most convincing stock pitch of all time. 

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#3) On July 26, 2013 at 11:01 AM, fireman9119ca (67.70) wrote:

HCG

Thank you for the nice writeup.  I do not reinvest my dividend but as stated invest them in some "liquid gold"  I think over time this will supplement my hourglass figure with a sweet beer belly...boiler or tank if you will.

My dream is a nice dividend raise in the future,  There are some tall boys I have been eyein' in the beer store.

 Beers soon, (free ones of course)

FM

http://www.youtube.com/watch?v=zfcWT-3MfFA

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