Oxford Lane Capital

Stock: OXLC

Rating: Buy

Author: Waleed M. Tariq

Overview

  • The company is a closed-end manager.
  • The corporation fulfilled its investment goal by buying CLO stock and junior debt.
  • LLC Oxford Lane Company’s investment advisor is OXLC.

Bullish

  • Oxford Lane’s profits growth and ‘first-time’ payments offset rising interest rates.
  • Forward yield curves help the organization hedge against rising interest rates.
  • Oxford’s float-rate CLOs improve cash flows with rising rates.

Bearish

  • Rising interest rates reduce retained asset value and raise capital needs, heightening closed-end fund return risk.

CEFs and rising rates

  • In these turbulent times, inflation and interest rates are major concerns.
  • Industry must discuss macroeconomic factors. CEF-required.
  • As rates rise, risk-free assets may yield more.
  • Increasing interest rates raises capital costs.

Oxford Lane Expectations?

  • Oxford’s Senior Managing Director and Portfolio Manager Deep Maji said higher interest rates were already factored into their ‘great yields’ $314,6% leverage reduces interest rate risk.
OXLC asset allocation
Source: CEF Connect
  • The business expects big “first-time” profits from its $380 million investments. Future revenues should support a 50-100 bps rate hike.
OXLC initial distribution dates
  • The 31% equity CLO investment is intended to counteract interest rate hikes and boost revenues.
  • Over 10% NAV premium despite 20% share price gain indicates purchasing possibilities. Rising interest rates may be behind the 5% drop in share price YTD, giving investors a rare chance to acquire a CEF.
NAV premium
CEF connect
  • NII and CNII easily meet the $0.225 quarterly payment. The company’s stable and durable payouts come from profits without ROC.
Annual distrubution
Source: Morningstar
  • Oxford’s 12-month Total Return on NAV is 42%, annualized dividend to NAV yield is 13%, and CLO equity cash distribution yield is 29.7%.

Conclusion

  • Oxford grows and distributes consistently. Smart macroeconomic investments improve the fund’s potential. The fund can cover dividends with strong earnings, NII, and CNII. Investing can boost dividends.