Monthly Dividend Stock In Focus: Gladstone Capital

Updated on April 2nd, 2025 by Felix Martinez

Business development companies, or BDCs, are attractive investment vehicles for income-generating investors. They generally distribute most of their earnings to shareholders and, as a result, typically have very high yields.

Gladstone Capital Corporation (GLAD) is a BDC with a current dividend yield of nearly 7.2%. It is one of more than 200 stocks with a 5%+ dividend yield.

You can see the full list of established 5%+ yielding stocks here.

Including Gladstone Capital, 76 stocks pay dividends each month versus the more traditional quarterly or semi-annual payment schedules.

You can download our full Excel spreadsheet of all 76 monthly dividend stocks (along with metrics that matter like dividend yield and payout ratio) by clicking on the link below:

Gladstone Capital’s dividend yield is higher than the rest of the market. The S&P 500 Index, on average, has a dividend yield of just 1.3%.

However, a high yield is not enough if the underlying business is weak or the dividend is at risk of being cut. This article will discuss whether or not Gladstone Capital is a good investment option for income investors.

Business Overview

Gladstone Capital operates as a Business Development Company and invests in debt and equity securities, generating income primarily from its debt investments.

These investments are made via various equity (10% of portfolio) and debt instruments (90% of portfolio), generally with very high yields. Loan size is typically in the $7 million to $30 million range, with terms of up to seven years.

Gladstone Capital chooses targets in stable industries with sustainable margins, cash flows, and favorable growth characteristics.

The company focuses on non-cyclical and non-financial companies to avoid peaks and valleys in its target companies’ earnings. These companies have leadership positions in their respective industries, growth potential, and annual EBITDA between $3 million and $15 million.

Gladstone Capital’s stated goal is to keep paying its hefty dividends to shareholders. Therefore, it is critical that its investment portfolio continues to generate interest and dividend income and capital gains in excess of its operating and financial expenses.

It has a diversified portfolio, both in terms of deal sourcing and industry groups.

Equity investments include preferred or common stock. Gladstone Capital seeks to maintain a 90% – 10% split between debt and equity investments.

Gladstone Capital reported Q1 2025 earnings, with total investment income down 7.4% to $22M due to lower yields and principal balances. Expenses fell 15.9%, boosting net investment income to $11.2M ($0.50 per share). Net asset value (NAV) rose 1.6% to $21.51 per share, while net assets from operations dropped to $27M from $31.8M.

The company invested $107.2M in six new portfolio companies and $44.5M in existing ones. Realized gains of $57.8M supported a $0.40 supplemental cash distribution. Debt investments grew by $45.2M, with secured first lien assets accounting for 73.4% of total debt holdings.

Post-quarter, Gladstone saw $26M in debt repayments and made $38.3M in new investments. Common stock distributions totaled $0.495 per share. President Bob Marcotte noted strong investment exits and originations, enhancing NAV and future earnings.

Source: Investor Presentation

Growth Prospects

Rising interest rates are one of Gladstone Capital’s most compelling growth catalysts. The company benefits from higher interest rates because most of its debt portfolio is in variable-rate securities.

Looking further back, Gladstone has had a difficult time generating growth. Gladstone’s share issuances have funded higher NII in dollar terms but haven’t earned enough above its cost of capital to move the needle on NII-per-share. Given this history, we estimate Gladstone’s annual growth rate to be 1% for the next five years.

The yields on the company’s portfolio influence its ability to earn income, cover expenses, and pay distributions to shareholders.

Gladstone Capital will aim to continue growing its new investments and adding new companies to the total portfolio. Over time, the company’s portfolio yield has increased to 14%.

Despite the rising cost of funding, Gladstone has managed to increase its yield spreads. Gladstone’s portfolio continues to grow in dollar terms, and the higher spreads on a larger portfolio are leading to earnings growth.

Dividend Analysis

Gladstone Capital pays a monthly dividend, which allows shareholders to receive 12 dividend payments per year, more frequently than four quarterly distributions.

GLAD currently pays a monthly dividend of $0.165 per share, which is larger than its pre-pandemic levels.

The annualized dividend payout of $1.98 per share represents a current dividend yield of 7.2%.

We believe Gladstone Capital’s current dividend is sustainable. The Company has a solid track record of steady payouts, even during the Great Recession of 2008-2009. Thanks to its tax classification and favorable fundamentals, the company can maintain its high yield.

BDCs are required to distribute at least 90% of any taxable income. This eliminates income tax at the corporate level, allowing capital gains to be passed through to shareholders, similar to a REIT.

With a projected dividend payout ratio of 99% for 2025, Gladstone Capital’s dividend payout appears to be secure but without much cushion. BDCs will always have high payout ratios due to the tax rule of distributing nearly all of their income, but overall, the dividend coverage is tight.

This means the company may not be able to sustain a major economic downturn and maintain its dividend. As a result, if another significant financial crisis occurs, Gladstone Capital’s dividend could be in jeopardy.

Assuming continued economic growth, its dividend appears to be sustainable. However, the high payout ratio introduces a relatively high risk to its sustainability, particularly during a recession.

Final Thoughts

Investors should approach high dividend yields with caution. Although high yields are commonplace in the BDC asset class, many have cut their dividends over the past few years.

For its part, Gladstone Capital reduced its dividend modestly in 2020 but has since grown it above its pre-COVID level. For now, we do not believe another dividend cut is imminent.

However, investors must pay close attention to the company’s future earnings reports. It has a very tight payout ratio, and any significant deterioration in the performance of its investment portfolio could threaten the dividend.

Overall, Gladstone Capital is likely only attractive for income investors looking for high yields.

Don’t miss the resources below for more monthly dividend stock investing research.

And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.