SAR (Saratoga Investment Corp.) Portfolio Grows, but Income Trails the Dividend
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Saratoga Investment has been adding to its loan portfolio. We welcome that growth, and we would like to see more of the income from those loans reach shareholders after costs. Its latest results show why that remains a challenge.
In the quarter ended August 31, 2026, Saratoga reported adjusted net investment income of ﹩0.46 per share. That is the income left after expenses, with a company adjustment for temporary borrowing costs. It compares with ﹩0.47 in the previous quarter and ﹩0.58 a year earlier. The results were released on October 6.
The dividend total was ﹩0.75 per share for the quarter, paid in three monthly amounts of ﹩0.25. So the quarter’s adjusted income was ﹩0.29 below the dividend.
Saratoga says it is using profits earned in earlier periods to help pay that difference. Those earlier profits can help bridge a gap. For future payments, we want to see the business earning more of the dividend as it goes along.
Why more lending has not brought more profit
Saratoga lends mainly to U.S. middle-market businesses. It earns interest on those loans and pays interest on its own borrowings, along with management fees and other expenses. What remains is the income available to support shareholders’ dividends.
Its investment portfolio grew 2.1% during the quarter to about ﹩1.15 billion. Income from investments rose slightly, but higher borrowing costs and management fees, together with lower fee income, absorbed the improvement. New loans also carried a smaller interest margin than the loans being repaid.
The adjusted earnings figure removes a temporary cost from having old and new borrowing outstanding at the same time. Without that adjustment, net investment income was ﹩0.45 per share. We think removing that overlap helps explain ongoing earning power. The cost of the replacement borrowing still needs to be covered.
What we would like to see next
Some investments also lost value. Net asset value, the value of Saratoga’s assets after its debts and other liabilities, fell from ﹩23.23 to ﹩22.15 per share. Paying dividends above current income contributed to that decline.
Management reports that it has since sold several weaker investments. We welcome those steps. The next test is whether the remaining portfolio can produce more income per share after costs.
We remain cautious about dividend support. The October 7 earnings call and the next quarterly report should help show whether new lending and the financing changes are improving that income. A steady dividend becomes more reassuring when the business earns more of the money needed to pay it.
Sources
- October 6 results and earnings adjustment
- Previous quarterly results
- August 31 quarterly filing
- Earnings-call information
This article is general information, not personalized investment advice. Fly High Investing may hold securities discussed in this article.