Oaktree Specialty LendingNASDAQ: OCSL

Oaktree Specialty Lending operates as a business development company that holds a focus on investing in middle market companies. Reduction in management fees to 1% is expected to increase net investment income per share by $0.15 annually. However, I believe this was done out of necessity to offset underperformance. Despite strong dividend growth history, caution is advised due to low coverage rate and lack of NAV growth, making OCSL a hold.

LOS ANGELES, CA, July 01, 2024 (GLOBE NEWSWIRE) -- Oaktree Specialty Lending Corporation (NASDAQ:OCSL) (“Oaktree Specialty Lending” or the “Company”) today announced that it will report its financial results for the third fiscal quarter ended June 30, 2024 before the opening of the Nasdaq Global Select Market on Thursday, August 1, 2024. Management will host a conference call to discuss the results on the same day at 11:00 a.m.

Oaktree Specialty Lending Corporation's share price has continued to underperform the BDC index after my updated bull thesis earlier this year. On the surface, such flat performance might seem justified. Yet, if we peel back the onion a bit, we will notice that the underlying dynamics remain strong.

Oaktree Specialty Lending Corporation experienced portfolio challenges in the second quarter of 2024, leading to net realized losses and a decrease in net asset value. The dividend payout ratio is nearing 100%, suggesting a potential dividend reduction in the upcoming year. The BDC's credit problems and non-accrual trend may worsen if not addressed promptly.

While the revenue and EPS of Oaktree Specialty Lending (OCSL) provide an indication of its performance in the quarter ending March 2024, it could be beneficial to also analyze how certain key metrics stack up against Wall Street forecasts and the figures from the same period last year.

Oaktree Specialty Lending has seen a significant decline in share price, but total return since inception is around 170% due to high distributions. OCSL specializes in middle market financing and has diverse exposure to various sectors within their debt portfolio. The current dividend yield for OCSL is 11.4%, with a quarterly dividend of $0.55/share.

Oaktree Specialty Lending Corp. had a disappointing quarter, with new non-accruals impacting net income and NAV. OCSL's portfolio is primarily focused on secured loans, with overweights in the software and healthcare sectors. The company's net new investments were robust, but the portfolio weighted average yield fell due to non-accruals and credit spread compression.

Oaktree Specialty Lending's shares dropped due to a rise in the non-accrual percentage, creating a buying opportunity. The BDC's focus on senior secured loans and ability to work out problematic loan situations mitigate the impact of non-accruals. Oaktree Specialty Lending's actual financial performance was strong, with growth in interest income and net investment income.

Oaktree Specialty Lending Corporation's stock price is down 8% after reporting fourth quarter results. The increase in non-accruals caused a panic sell-off, but the author believes investors overreacted. The stock is now classified as a Strong Buy with a solid yield above 11% and improved risk/reward relationship.