Stellus Capital Investment NYSE: SCM reported first-quarter results that included lower net asset value, a modest decline in portfolio size and elevated non-accruals, while management signaled that the company’s dividend is likely to move lower over time to better align with earnings and realized gains.
On a conference call covering the quarter ended March 31, 2026, Chief Executive Officer Robert Ladd said the company would focus on financial results, portfolio quality, the second-quarter outlook, opportunities tied to Ridgepost Capital, its share repurchase program and future portfolio growth.
Chief Financial Officer William Huskinson said Stellus generated GAAP net investment income of $0.26 per share in the first quarter. Core net investment income, excluding estimated excise taxes, was $0.27 per share. The company also realized gains of $750,000 on one equity position, resulting in total realized income of $0.29 per share for the quarter.
Net asset value declined by $0.28 per share during the period. Huskinson attributed $0.08 per share of the decline to dividend payments that exceeded earnings, which he said was needed to continue paying out spillover income from 2025. Another $0.20 per share came from net realized and unrealized losses, primarily related to two debt investments.
Portfolio slips to $990 million as repayments outpace new investments
Stellus ended the quarter with an investment portfolio at fair value of $990 million across 116 portfolio companies, compared with $1.01 billion across 115 portfolio companies at the end of 2025.
During the quarter, the company invested $18 million in three new portfolio companies and had $9 million in other investment activity at par. It also received three full repayments totaling $35 million, completed one equity realization that produced a $750,000 realized gain and received $6.6 million of other repayments at par.
Huskinson said 99% of Stellus’ loans were secured as of March 31, and 92% were floating-rate. The average loan per company was $9 million at fair value, while the largest overall investment was $18.5 million. He added that substantially all of the company’s portfolio companies are backed by private equity firms.
Since its November 2012 initial public offering, Stellus has invested approximately $2.8 billion in more than 225 companies and received about $1.8 billion of repayments, Huskinson said. The company has paid $339 million of dividends to investors, or $18.49 per share for an investor in the IPO.
Non-accruals rise as management says asset quality is still slightly ahead of plan
Huskinson said overall asset quality was “slightly better than planned,” with 81% of the portfolio at fair value rated a 1 or 2, meaning on or ahead of plan. The remaining 19% was rated 3 or below, meaning not meeting plan or expectations.
The company added one loan to non-accrual status during the quarter. Stellus now has six loans to six portfolio companies on non-accrual, representing 9.2% of total cost and 5.2% of fair value, a slight increase from the prior quarter.
“We recognize that the level of non-accrual loans is higher than we would like,” Huskinson said. He said the company is actively working on each position and trying to either exit them or return them to accrual status.
In response to analyst questions, Ladd said the non-accrual issues are company-specific and not tied to a broader macroeconomic or underwriting trend. He said Stellus typically invests in companies backed by private equity sponsors, with meaningful equity in the capital structure and covenants such as fixed-charge coverage and leverage tests.
Ladd said resolution would not be immediate and pointed to the end of 2026 and into early 2027 as a more likely timeframe for noticeable progress, noting that these situations generally involve a 12- to 24-month resolution period.
Dividend expected to decline over time
For the second quarter, Stellus declared dividends totaling $0.34 per share, payable monthly. Ladd said the company is making progress in reducing spillover income and expects that, over time, the dividend will approximate net investment income plus realized gains.
“At this point, that would be at a lower level than the current dividend,” Ladd said.
Asked by Erik Zwick of Lucid Capital Markets whether that implied a potential dividend reset, Ladd said Stellus would like to grow net investment income per share but expects it to remain near current levels for a while. “Our expectation is that the dividend will be coming down associated with that,” he said.
Ridgepost tie-up, buybacks and growth capacity in focus
Ladd said Stellus Capital Management, the company’s external adviser, is expected to join the Ridgepost Capital platform this summer. He said the company expects to benefit from additional investment opportunities through Ridgepost’s lower middle market private equity fund-to-fund strategy, RCP Advisors, which has relationships with more than 200 private equity firms.
Management also highlighted a recently announced common stock repurchase program of up to $20 million. Ladd said the decision reflects the company’s share price trading at about a 25% discount to net asset value, compared with a history of trading at or above NAV for many years. He said no shares were repurchased after the prior quarter due to the limited trading window following the filing of the annual report, but the company expects a longer window in the current quarter.
Ladd said Stellus has capacity to increase its investment portfolio by $75 million to $100 million. He said that potential growth could come from a third SBIC license, which the company is optimistic will be re-awarded this summer, as well as from recycling equity gains and resolved non-accrual loans into new income-producing investments.
Looking at the current quarter, Ladd said the portfolio stood at approximately $970 million across 117 companies as of the call date. He said Stellus expects repayments and new fundings to roughly offset each other through the remainder of the quarter. For the balance of the year, the company estimates $9 million of realizations, including approximately $6 million of realized gains.
On market conditions, Ladd said spreads in the company’s lower middle market segment have stabilized but have not meaningfully widened. He said the average deal Stellus is reviewing is approximately a 5% spread over SOFR, with some transactions ranging from the high 4% area to the mid- to high-5% area.
About Stellus Capital Investment NYSE: SCM
Stellus Capital Investment Corporation NYSE: SCM is a closed-end, externally managed business development company that provides debt and equity financing to middle market companies in the United States. As an investment vehicle specializing in private credit, Stellus focuses on originating and structuring senior secured loans, unitranche facilities, mezzanine debt, and equity co-investments tailored to the unique needs of growing businesses. Its flexible capital solutions are designed to support acquisitions, recapitalizations, growth initiatives, and balance sheet refinancings.
Operating under an evergreen structure, Stellus Capital Investment partners with a diverse group of portfolio companies across industries such as manufacturing, healthcare, business services, and specialty finance.
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