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1. Company Snapshot

1.a. Company Description

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.

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1.b. Last Insights on SCM

Stellus Capital Investment Corporation's recent performance was driven by its solid operating results for the quarter ended September 30, 2024, with net investment income of $0.39 per share and core net investment income of $0.40 per share. The company's ability to cover its regular dividend of $0.40 per share is a positive indicator of its financial health. Additionally, the declaration of a monthly dividend of $0.1333 for each of January, February, and March 2025, totaling $0.40 per share, demonstrates the company's commitment to returning value to shareholders.

1.c. Company Highlights

2. Stellus Capital Q4 2025: Solid Returns Amid Strategic Growth

In the fourth quarter, Stellus Capital generated GAAP net investment income of $0.29 per share, mirroring its core NII and falling short of analyst expectations of $0.31. Realized income climbed to $0.48 per share, bolstered by a $0.23 decline in net asset value, which narrowed the asset base to $1.01 billion across 115 portfolio companies. The company’s earnings per share matched its GAAP NII, underscoring the alignment of income generation and share valuation. With a price‑to‑earnings ratio of 9.81 and a price‑to‑sales ratio of 2.61, the stock trades at a modest premium relative to its peers, while a 16.47 % dividend yield signals attractive income potential for yield‑seeking investors.

Publication Date: Apr -13

📋 Highlights
  • Core and GAAP Net Investment Income:: Both metrics remained flat at $0.29 per share, reflecting stable financial performance in Q4 2025.
  • Net Asset Value Decline:: NAV per share fell by $0.23, indicating asset value erosion during the quarter.
  • Portfolio Size and Buyback Program:: $1.01 billion in investments across 115 companies, alongside a $20 million share repurchase authorization.
  • Acquisition of Management Company:: Ridge Post Capital to acquire Stellus Capital Management, anticipated to boost deal flow and opportunities by mid-2026.
  • Asset Quality and AUM:: 81% of the portfolio is performing well (on or ahead of plan), with $43 billion in assets under management.

Portfolio Performance

Stellus maintained a stable asset quality profile, with 81 % of holdings rated one or two or ahead of plan. The portfolio, valued at $1.01 billion, continues to focus on direct‑originated senior secured loans to lower‑middle‑market, private equity‑backed firms, a niche that has delivered consistent cash flows and limited credit risk.

Dividend and Share Buyback

For 2026, the company declared a monthly dividend of $0.34 per share, reinforcing its commitment to returning capital to shareholders. The recently approved $20 million share buyback program further signals confidence in the company’s valuation and the strength of its cash‑flow generation.

Outlook for 2026

Management projects the portfolio to remain near $996 million, unchanged in company count, while targeting an increase in net investment income through stable SOFR rates, potential SBA leverage, and higher loan yields. The company’s forecasted dividend growth aligns with its earnings trajectory, suggesting sustainable cash returns.

Ridge Post Acquisition

The pending acquisition of Stellus Capital Management by Ridge Post Capital is slated to close mid‑2026, potentially unlocking new deal flow and expanding the firm’s lower‑middle‑market reach. The transaction is expected to create synergies that could accelerate fundraising and broaden investment opportunities.

Asset Quality and Risk

Non‑accrual assets, including positions in Venbrook and Real Estate Services, are projected to resolve within 12–18 months, mitigating current credit exposure. Ladd emphasized that the firm’s underwriting guidelines deliberately exclude commodity‑price risk, insulating the portfolio from energy volatility.

Fundraising and Investor Interest

Institutional appetite for lower‑middle‑market credit has risen, driven by a shift away from large‑cap upper‑middle‑market managers. Ladd anticipates this trend will fuel accelerated fundraising in 2027, potentially expanding the firm’s capital base and supporting growth.

PIK Income and Cash Flow

Year‑over‑year increases in payment‑in‑kind income reflect temporary cash‑flow relief rather than a strategic shift. Private‑equity owners have injected capital to shore up distressed assets, indicating a healthy partnership model that preserves long‑term returns.

Market Conditions and Pricing

Reduced capital flows and heightened risk perception may widen spreads, creating a favorable environment for Stellus. Ladd noted that improved pricing could enhance loan origination terms, further boosting the firm’s margin profile.

3. NewsRoom

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Stellus Capital Investment Corporation Announces $0.34 Second Quarter 2026 Regular Dividend, Payable Monthly in Increments of $0.1133 in May, June, and July 2026

00:56

Source: prnewswire.com

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30 Monthly-Paid Dividend Buys From April's Ideal Dogs

Apr -14

Source: seekingalpha.com

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Dividend Power: 6 Ideal Buys In April

Apr -08

Source: seekingalpha.com

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Head-To-Head Review: Stellus Capital Investment (NYSE:SCM) & Kayne Anderson BDC (NYSE:KBDC)

Mar -28

Source: defenseworld.net

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Stellus Capital Investment (NYSE:SCM) Shares Cross Below Two Hundred Day Moving Average – Here’s Why

Mar -27

Source: defenseworld.net

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Selkirk Copper Expands Mineralization at Four Resource Zones at the Minto Copper-Gold-Silver Mine

Mar -25

Source: newsfilecorp.com

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SCM Offers One of the Highest Yields Around But Retirees Should Pause Before Buying

Mar -16

Source: 247wallst.com

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There Are BDCs Paying 14% to 27% Yields But Only A Few That Can Actually Sustain It

Mar -16

Source: 247wallst.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (10.30%)

6. Segments

Investment and Related Activities

Expected Growth: 10.3%

Stellus Capital's diversified portfolio in middle-market companies drives growth through interest, dividends, and capital gains. Strong demand for private debt and equity investments, coupled with the company's expertise in originating and managing investments, fuels growth.

7. Detailed Products

Middle Market Direct Lending

Provides financing solutions to middle market companies, offering customized loan structures and flexible terms to meet the unique needs of each borrower.

Asset-Based Lending

Offers financing solutions secured by a company's assets, such as accounts receivable, inventory, or equipment, to provide liquidity and support business growth.

Unitranche Financing

Provides a single, integrated loan facility that combines the benefits of senior debt and subordinated debt, offering a simplified and efficient financing solution.

Second Lien Financing

Offers subordinated debt financing solutions to support companies with unique financing needs, such as growth capital, acquisitions, or recapitalizations.

Equity Co-Investments

Partners with private equity sponsors and companies to provide equity co-investments, supporting growth initiatives, acquisitions, and recapitalizations.

8. Stellus Capital Investment Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Stellus Capital Investment Corporation is medium, as there are alternative investment options available to investors, but the company's unique investment strategy and diversified portfolio mitigate this threat to some extent.

Bargaining Power Of Customers

The bargaining power of customers for Stellus Capital Investment Corporation is low, as the company's investment products are diversified and cater to a wide range of investors, reducing the dependence on individual customers.

Bargaining Power Of Suppliers

The bargaining power of suppliers for Stellus Capital Investment Corporation is medium, as the company relies on a diverse range of suppliers for its investment operations, but has some flexibility to negotiate prices and terms.

Threat Of New Entrants

The threat of new entrants for Stellus Capital Investment Corporation is high, as the investment management industry is highly competitive and new entrants can easily enter the market with innovative products and services.

Intensity Of Rivalry

The intensity of rivalry for Stellus Capital Investment Corporation is high, as the investment management industry is highly competitive, and the company faces intense competition from established players and new entrants.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 99.68%
Debt Cost 5.07%
Equity Weight 0.32%
Equity Cost 9.67%
WACC 5.09%
Leverage 31122.18%

11. Quality Control: Stellus Capital Investment Corporation passed 2 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Stellus Capital

A-Score: 6.6/10

Value: 5.8

Growth: 5.6

Quality: 5.3

Yield: 10.0

Momentum: 3.5

Volatility: 9.7

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Diamond Hill Investment

A-Score: 5.9/10

Value: 7.8

Growth: 3.2

Quality: 7.9

Yield: 10.0

Momentum: 2.5

Volatility: 4.0

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BlackRock TCP Capital

A-Score: 5.7/10

Value: 8.6

Growth: 3.2

Quality: 3.4

Yield: 10.0

Momentum: 1.0

Volatility: 8.0

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Virtus Investment Partners

A-Score: 5.6/10

Value: 6.2

Growth: 5.1

Quality: 5.3

Yield: 8.0

Momentum: 2.0

Volatility: 7.0

1-Year Total Return ->

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WisdomTree

A-Score: 5.5/10

Value: 3.8

Growth: 6.3

Quality: 7.0

Yield: 3.0

Momentum: 5.0

Volatility: 7.7

1-Year Total Return ->

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PhenixFIN

A-Score: 5.1/10

Value: 5.7

Growth: 5.0

Quality: 5.6

Yield: 3.0

Momentum: 3.0

Volatility: 8.3

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

9.67$

Current Price

9.68$

Potential

-0.13%

Expected Cash-Flows