Monthly Dividend Stock In Focus: Horizon Technology

Up to date on Might twenty eighth, 2021 by Bob Ciura

Horizon Expertise Finance (HRZN) has a present dividend yield of greater than 7%. Horizon’s excessive dividend yield makes it extraordinarily engaging at first look. The S&P 500 Index, on common, gives only a ~1.4% dividend yield.

Not solely does it have a really excessive dividend yield, however it additionally makes its funds every month. Horizon is considered one of solely 54 month-to-month dividend shares.

You may obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yield and payout ratio) by clicking on the hyperlink under:

Horizon’s yield could be very close to the highest of the record of month-to-month dividend shares, a gaggle that features many different high-yield securities like REITs and different BDCs.

This text will focus on Horizon’s enterprise mannequin and whether or not it’s an interesting inventory for earnings traders.

Enterprise Overview

Horizon Expertise Finance is a Enterprise Growth Firm, or BDC. These are corporations that make investments in privately-held corporations.

Horizon makes its returns through investments in corporations by means of immediately originated senior secured loans and, to a smaller extent, capital appreciation potential by means of warrants.

It gives debt financing to early-stage corporations throughout three business teams:

• Life Science
• Expertise
• Healthcare Info & Companies

Life science corporations primarily embrace biotechnology, medical units, and specialty prescription drugs.

Expertise investments are usually made in cloud computing, wi-fi communications, cyber safety, information analytics and storage, web, software program, and extra.

Healthcare data consists of diagnostics, medical information, and affected person administration software program suppliers.

A breakdown of Horizon’s portfolio is as follows:

Supply: Investor Presentation

The portfolio is closely weighted within the know-how group, however even inside that group, industries are extremely diversified.

As well as, the corporate has a positive mixture of steady and rising corporations, respectively, in its portfolio, to offer a mixture of progress and security in its lending.

Horizon views potential investments by means of a long-term lens. It invests in corporations which have progress potential, robust administration groups, superior know-how, and/or invaluable mental property.

As of the tip of March, Horizon had a web asset worth of $11.07 per share. The share value at present trades at a premium to web asset worth.

Horizon has a sound funding philosophy. It additionally has a high-quality mortgage portfolio, that ought to present the corporate with progress going ahead.

Development Prospects

On April 27th, 2021, Horizon launched its Q1 outcomes for the interval ended March 31st, 2021. Complete funding earnings grew by 31% YoY to $13.2 million. This was resulting from progress in curiosity earnings on investments ensuing from a rise within the common measurement of the debt funding portfolio. Web funding earnings per share (ISS) grew to $0.31, 19% greater in comparison with Q1 2020.

The mismatch in progress to the total earnings was because of the further share issuances that took place to fund the corporate’s portfolio enlargement. Web asset worth (NAV) per share got here in at $11.07, in comparison with $11.02 within the earlier quarter, as Horizon earned greater than what it paid out in distributions.

In reality, after paying its month-to-month distributions, Horizons undistributed spillover earnings as of March 31st was $0.33 per share, indicating a appreciable money cushion.

The portfolio remained comparatively steady, holding 67 companies on the finish of the quarter. Administration reassured traders of dividend stability going ahead by declaring its three ahead month-to-month dividends at a charge of $0.10. We proceed to anticipate FY2021 ISS/share of $1.25.

Horizon additionally has a rising and large addressable market.

Supply: Investor Presentation

Horizon sees a $16 billion addressable market in opposition to its present portfolio of $380 million. This could present a wealth of alternatives for Horizon, and it could possibly subsequently choose one of the best alternatives within the coming years.

Dividend Evaluation

Horizon at present pays a month-to-month dividend of $0.10 per share. The annualized dividend payout of $1.20 represents a yield of seven.3%, primarily based on Horizon’s present value. This demonstrates why BDCs are a preferred funding for earnings traders, and significantly one which has a yield as excessive as Horizon.

Nevertheless, abnormally excessive dividend payouts might be decreased if the issuing firm encounters monetary problem. That stated, Horizon nonetheless gives a excessive yield, which could possibly be very interesting for earnings traders.

Web funding earnings for 2021 is predicted to succeed in $1.25 per share, which equates to a payout ratio of 96%. That is an enchancment from 2020, when the payout ratio exceeded 100% of NII-per-share, because the coronavirus pandemic triggered a decline within the portfolio outcomes.

If funding earnings declines sooner or later, the dividend could be in peril of a discount. Then again, if the U.S. economic system avoids a recession, and Horizon continues to see success from its investing methods, the dividend could possibly be maintained. To that finish, Horizon did keep its dividend funds all through 2020 and thus far in 2021.

The corporate’s aggressive benefit lies in its experience to establish essentially the most promising corporations in dangerous sectors, which requires skilled data and expertise past finance. Up to now, this perokay has stood strong, as the corporate’s outcomes have outperformed the remainder of its friends, a lot of which have been compelled to chop their distribution resulting from elevated market strain.

In an optimum state of affairs, Horizon may proceed to pay its distribution of $1.20 yearly for the foreseeable future.
Nevertheless, any BDC has elevated danger of chopping its distribution on condition that it’s required to distribute basically all of its earnings. Ought to Horizon’s monetary outcomes deteriorate, a dividend minimize is actually attainable, as occurred in 2016.

Closing Ideas

Excessive dividend yields are sometimes an indication of elevated danger. On this case, there may be appreciable danger that Horizon’s dividend could possibly be decreased sooner or later if its funding earnings deteriorates, which may happen in a deep recession.

Nevertheless, the outlook for Horizon is mostly constructive. It invests in know-how and healthcare, two steady industries with progress potential. The corporate’s underwriting rules provide excessive yields and customarily protected lending situation, which assist web funding earnings and subsequently, the dividend.

Horizon could possibly be a sexy excessive dividend inventory for earnings traders due to its 7.3% dividend yield, with the acknowledgement that the dividend could possibly be in danger in a enterprise downturn.