Runway Growth Finance Corp. (NASDAQ: RWAY) - A High Dividend Yield Opportunity in Growing Markets

Small Caps 2 replies 0 votes 2243 views Tags:  dividend yieldhigh-income portfolioinvestment portfoliolife scienceNASDAQRunway Growth Finance CorpRWAYtech sector
Brown girl 12 months

Meet Runway Growth Finance Corp. (NASDAQ: RWAY), an appealing company that's catching investors' attention with its large dividend yield, currently hovering around 11% and nearing 12%. This high dividend yield has resulted in the company receiving a lower multiple, making it an attractive prospect.

However, there's a caveat to consider. Analysts estimate that the dividend yield may decrease in the coming years, as the company will need to prioritize other capital priorities for sustained growth. The current trailing twelve months (TTM) payout ratio is over 70%, which might not be sustainable if they want to continue expanding without compromising potential future endeavors.

But don't worry, the decrease in dividends is unlikely to happen too quickly. The dividend is expected to remain high for a few more years, making Runway an attractive option for investors seeking a high-income dividend company, even if there's a slight year-over-year decrease.

Looking at the company's structure, Runway Growth Finance Corp. has been around since 2015, but in this relatively short period, they have managed to grow their investment portfolio to an impressive $1 billion as seen in the Q1 report. This significant improvement was possible due to a solid customer base, where they offer senior secured loans to late-stage and growth companies.

The markets they focus on are the tech sector, life science, and health care, which can be quite risky since the growth companies in these sectors are often far from profitability. This situation adds risk to Runway as a potential default on loans becomes a real factor to consider.

When it comes to the company's capital activity, results may be volatile as they directly reflect market sentiment. In times of higher interest rates like now, RWAY's returns are larger, but revenues and volumes might decrease. The low-interest rate environment in 2021 saw many companies enter into loans, which helped Runway significantly increase its investment portfolio to $1.125 billion, nearly an 80% increase year over year.

The first quarter of 2023 was successful for the company, with revenues reaching $39 million, a remarkable 101% YoY increase. CEO David Spreng's comments from the last earnings call highlight the company's careful positioning and focus on late-stage companies to mitigate risk.

Regarding valuation, a GGM model suggests that Runway Growth Finance Corp. looks like a promising long-term dividend investment for high-income portfolios. Although the near term might see a slightly lower dividend, it's not significant enough to discourage a buy case. The company's current high yield and capital allocation strategy to build out the investment portfolio further are attractive to shareholders.

Runway Growth Finance Corp. has achieved impressive growth since its inception in 2015. With a well-structured business and a valued investment portfolio of over $1 billion, the company is prioritizing returns for shareholders, making it a favorable addition to high-dividend portfolios. With all factors considered, in my opinion rates RWAY is a "buy" at this time.

Forgot Password?
Don't have an account? Sign up