There’s a lot of fear in the business development company, or BDC, world right now due to concerns over private credit. BDCs typically lend money to private companies.
Stellus Capital Investment (NYSE: SCM) is a BDC with more than $10 billion in invested capital across over 100 active investments.
It lends between $20 million and $100 million to private companies that generate between $5 million and $50 million in EBITDA (earnings before interest, taxes, depreciation, and amortization) in a wide variety of industries.
Its portfolio includes…
- Multiple loans to CARS Protection Plus, which provides insurance to dealers and service centers and is headquartered in Monroeville, Pennsylvania
- A second-lien loan to Global Knowledge, an IT training provider located in Cary, North Carolina
- A second-lien loan to Boston-based healthcare cost management company Zelis.
Stellus currently pays a giant 13.6% yield. But is that sustainable?
The cash flow metric we use for BDCs is net investment income, or NII.
In 2025, Stellus’ NII dipped from $15.6 million to $15.1 million.
Any decline in NII is a no-no for Safety Net. The Safety Net model never wants to see cash flow falling. It results in an automatic penalty to the company’s dividend safety rating.
Making matters worse, Stellus’ NII is expected to drop even further in 2026 to $13.7 million.
In fact, it isn’t forecast to return to where it was last year until at least 2029.
Meanwhile, Stellus hasn’t been able to afford its dividend since 2022.
Last year, it paid shareholders $45.3 million in dividends despite bringing in just $15.1 million in NII. That resulted in a payout ratio of 300%. (Remember, for BDCs, the Safety Net model wants to see payout ratios of below 100%.)
In 2026, Wall Street expects payments of $49.7 million even though NII is forecast to drop to $13.7 million. That would be an even more dangerous payout ratio of 364%.
Stellus pays a monthly dividend of $0.1133 per share, which comes out to a 13.6% yield.
However, today’s dividend is below what the company paid in 2023, 2024, and 2025, when shareholders received $0.1333 per share each month.
Stellus also cut the dividend in 2020 during the pandemic.
So we have a company with declining cash flow, a dividend that is multiples higher than its cash flow, and a track record of slashing the dividend.
If there were a textbook example of a company whose dividend is likely to be cut, Stellus Capital Investment would be it.
The dividend is not safe.
Dividend Safety Rating: F
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