Chicago Atlantic BDC: Q3 Earnings Indicates Growth Potential (Rating Upgrade)
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Cain Lee7.39K FollowersFollow5ShareSavePlay(12min)CommentsSummaryChicago Atlantic BDC (LIEN) is upgraded to Buy, driven by strong Q3 earnings, resilient NAV growth, and an attractive 19.5% discount to NAV. LIEN’s portfolio, focused on senior secured floating rate debt and expanding beyond cannabis, supports a robust 12.7% dividend yield with 124% coverage. Management’s active investment pace and sector diversification position LIEN to capitalize on cannabis industry growth and mitigate rate environment risks. Rising PIK income and ordinary dividend tax treatment warrant monitoring, but LIEN’s earnings and portfolio quality underpin sustainable distributions. Stefan Tomic/iStock via Getty Images Overview While business development companies continue to struggle in the high interest rate environment, I believe that Chicago Atlantic BDC (LIEN) stands out as an attractive play at this time. When I previously coveredThis article was written byCain Lee7.39K FollowersFollowFinancial analyst by day and a seasoned investor by passion, I've been involved in the world of investing for over 15 years and honed my skills in analyzing lucrative opportunities within the market.I specialize in uncovering high quality dividend stocks and other assets that offer potential for long term-growth that pack a serious punch for bill-paying potential. I use myself as an example that with a solid base of classic dividend growth stocks, sprinkling in some Business Development Companies, REITs, and Closed End Funds can be a highly efficient way to boost your investment income while still capturing a total return that follows traditional index funds. I created a hybrid system between growth and income and manage to still capture a total return that is on par with the S&P.Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in LIEN, over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.Quick InsightsHow does LIEN’s current valuation compare to its historical NAV discount?LIEN trades at a 19.5% discount to NAV, narrower than its three-year average of 24.45%, suggesting a potential accumulation opportunity relative to peers.What supports the sustainability of LIEN’s 12.7% dividend yield?Net investment income of $0.42 per share covers the $0.34 dividend at a 124% rate, providing a strong cushion above the preferred 115% threshold for payout safety.What risks are highlighted regarding LIEN’s portfolio and income composition?PIK interest income rose to $1.7M, indicating some borrower cash flow strain, and all distributions are taxed as ordinary income, impacting after-tax returns for investors.Recommended For You