Oxford Square Capital Faces Dividend Sustainability Concerns

Recent quarterly results from Oxford Square Capital reveal a company grappling with conflicting financial trends. The CLO-focused investment firm reported strengthening revenue generation alongside concerning declines in asset value, creating uncertainty around its ability to maintain current dividend distributions.

Dividend Coverage Ratio Deteriorates

The most pressing issue for income-focused investors is the growing disparity between Oxford Square Capital’s dividend payments and its earnings. The company’s quarterly distribution of $0.105 per share now substantially exceeds its net investment income of $0.07 per share. This has driven the coverage ratio down to just 67%, a significant drop from 95% in the previous year. The widening gap raises legitimate questions about whether management will need to reduce the attractive payout in the near future.

Portfolio Losses Drive NAV Decline

Oxford Square Capital’s net asset value per share experienced a notable contraction, falling to $1.95 in the third quarter from $2.06 in the preceding period. This decline was primarily fueled by substantial portfolio losses totaling approximately $7.5 million, equivalent to $0.09 per share. The magnitude of these losses represents a dramatic worsening from the previous quarter’s $1.1 million in combined unrealized and realized investment losses.

Should investors sell immediately? Or is it worth buying Oxford Square Capital?

Key Financial Metrics:
* Total investment income: $10.2 million (improved)
* Net investment income per share: $0.07 (declined)
* Investment losses per share: $0.09 (significantly increased)
* NAV per share: $1.95 (weakened)

Revenue Growth Fails to Translate to Bottom Line

Despite the challenging quarter for portfolio values, Oxford Square Capital demonstrated continued strength in generating investment income. Total investment revenues climbed to $10.2 million, up from $9.5 million in the second quarter. However, this improvement didn’t fully materialize in the company’s net investment income, which remained stagnant at $5.6 million, or $0.07 per share.

Market performance reflects these underlying concerns, with shares currently trading at €1.65 and having lost more than 30% of their value since the beginning of the year. The latest quarterly figures are unlikely to alleviate investor anxiety, as the fundamental tension between rising revenues and declining asset values continues to pressure the stock.