Stellus earns interest by lending to companies in its portfolio, while fees and distributions from equity investments can add to that income. Its loans mainly carry floating rates, so the interest it earns depends on both the amount invested and the yield on those investments. Borrowing costs and other operating expenses reduce what remains for shareholders, while gains from selling investments and changes in portfolio valuations are separate from the loan income.
Business
BDC
Listing
SCM · New York Stock Exchange
Reporting period
2026-06-30
Dividend schedule
Monthly
How the business works
Stellus's dividend is supported by the Fly High annual figures, but not comfortably: earnings are only a little higher than the payment, and both figures are unchanged in this update. Recorded retained earnings provide an additional, finite buffer, but they are neither recurring income nor proof of available cash.
The company's separate June-quarter report helps explain the caution. Lower interest income weakened reported net investment income, and reduced operating expenses only partly softened the decline. More convincing dividend support would come from rebuilding portfolio interest earnings after costs. Until that improvement appears, the narrow earnings margin deserves more weight than the retained balance.
Financial snapshot: 2026-06-30. Research reviewed 2026-10-17. The annual earnings comparison is from 2026-10-17. The business and balance-sheet figures below relate to the reporting period shown.
The assets it owns
$982.125 million total assetsReported by Stellus Capital Investment Corporation
Investment values and income tell different parts of Stellus's story. Changes in portfolio valuations affect reported gains or losses, while interest, fees and investment distributions, less operating costs, determine net investment income. Higher valuations therefore should not be mistaken for stronger income behind the dividend.
Share of consolidated total assets at 2026-06-30; other assets are the arithmetic residual. This is not a loan-seniority or sector allocation.
Annual earnings of $1.03 per share compare with $1.00 in annual dividends. Coverage is 103.00%. Earnings cover the payment in this update. Keep watching whether that support holds up.
Stellus can recognize some investment income before receiving the cash, including interest that borrowers defer rather than pay immediately. Its adviser also earns an income-based incentive fee, subject to a minimum return threshold, a cumulative-return test and rules for deferring noncash amounts.
Those details matter because reported income and cash collected are not always the same. Borrower payments give the dividend more practical support than interest still due later, while operating expenses and adviser fees reduce what remains for shareholders.
Stellus finances its investments through a revolving credit facility, notes, SBA-backed borrowing and cash generated by the portfolio, including investment sales and repayments. Securities offerings provide another source of capital.
That mix explains why money coming into Stellus is not necessarily profit. Repayments return invested capital, while borrowing and share issuance supply financing; the income supporting shareholders' payments is what the investments earn after costs.
Annual earnings of $1.03 per share compare with $1.00 in annual dividends. Coverage is 103.00%. Earnings cover the payment in this update. Keep watching whether that support holds up.
We like the earnings support here. A steady or growing cushion would make the income case more comfortable.
Loans on non-accrual are investments whose interest Stellus is no longer recognizing as income. A loan can leave that category because the borrower's ability to pay improves, but also because the investment is sold or written off.
A smaller non-accrual balance would not automatically mean a recovery. Resumed payments would strengthen income, whereas a write-off could reduce the problem-loan balance without recovering shareholders' capital.
Stellus's revolving credit facility charges a benchmark interest rate plus a margin, so its borrowing cost can move with market rates. It also pays fees on unused lender commitments.
Interest rates therefore affect the cost side of the business as well as the income from its loans. What matters for the dividend is the earnings left after those costs, not simply whether rates rise or fall.
Stellus had five portfolio companies on non-accrual at June 30, 2026. Those investments represented 8.5% of cost and 5.4% of fair value, compared with 7.5% and 4.1% at December 31, 2025, also across five companies. Income not accrued on those investments increased from $11.183 million to $14.927 million.
Fly High assessment: The unchanged company count masks a larger impaired exposure and more income that was not recognized. Monitor borrower cash payments, recoveries and additional downgrades. A first-lien position alone does not establish that capital or interest will be recovered.
Covenant compliance and a completed note refinancing
At June 30, 2026, Stellus held $5.1 million of cash and reported 206% asset coverage, excluding SBA-guaranteed debentures under its exemption. It reported compliance with its credit-facility covenants and sufficient cash and borrowing availability for $45.7 million of unfunded commitments. The $125 million of 2030 notes had funded full redemption of the 2026 notes and a partial facility repayment.
Fly High assessment: The completed refinancing, covenant compliance and disclosed ability to fund commitments do not identify an immediate funding shortfall. The cash balance alone is small, facility access is conditional and the regulatory ratio excludes SBA borrowing. Those limits require continued review.
Stable headline NAV relied partly on gains and share accretion
NAV per share was $12.80 at June 30, 2026 versus $12.82 at December 31, 2025. The first-half bridge includes $0.52 of net investment income, $0.32 of unrealized gains, $0.22 of realized losses, $0.68 of distributions, $0.05 of share-offering accretion and a $0.01 other reduction.
Fly High assessment: Per-share capital was nearly unchanged, but investment marks and share accretion helped offset distributions and realized losses. Watch whether future capital stability comes from continuing investment earnings and recoveries. The bridge does not establish that all distributions were covered by the preferred recurring earnings measure.
For Stellus's troubled loans, the useful improvement would be borrowers paying again and capital being recovered. A decline in non-accrual exposure would be more reassuring if it came from recoveries rather than write-offs, because a smaller problem-loan balance does not necessarily mean more income or better capital preservation.
Net asset value
Latest recorded asset value per share$12.80Share price compared with recorded asset value44.84% discount
Financial data through October 17, 2026.
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U.S. federal · Tax year 2025
Dividend tax treatment
Stellus Capital's 2025 distributions were ordinary dividends, with approximately 2.74% designated as qualified.
Ordinary, nonqualified
97.26%
Qualified dividends
2.74%
Capital-gain distributions
0%
Return of capital
0%
Tax year: 2025. Total distributions: $1.60 per share.
Tax details and source
Total ordinary dividends (includes qualified)
100%
Section 199A portion (within ordinary dividends)
Not confirmed
Exempt-interest distributions
0%
Reporting form
Form 1099-DIV
Source date
Not stated
Qualified dividends are included in total ordinary dividends. Section 199A is a separate designation within ordinary dividends, not extra income or qualified dividend income.
Your account type, holding period and circumstances affect treatment. Use your broker’s tax statement for filing. Return of capital generally reduces cost basis; amounts beyond basis can be taxable. IRS dividend guidance.
