Head-To-Head Survey: Sixth Street Specialty Lending (NYSE:TSLX) vs. Fidus Investment (NASDAQ:FDUS)

Fidus Investment (NASDAQ:FDUS) and Sixth Street Specialty Lending (NYSE:TSLX) are both small-cap finance companies, but which is the superior business? We will compare the two companies based on the strength of their dividends, analyst recommendations, earnings, risk, profitability, valuation and institutional ownership.

Dividends

Fidus Investment pays an annual dividend of $1.72 per share and has a dividend yield of 9.2%. Sixth Street Specialty Lending pays an annual dividend of $1.84 per share and has a dividend yield of 9.9%. Fidus Investment pays out 73.5% of its earnings in the form of a dividend. Sixth Street Specialty Lending pays out 101.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Institutional & Insider Ownership

28.1% of Fidus Investment shares are held by institutional investors. Comparatively, 70.3% of Sixth Street Specialty Lending shares are held by institutional investors. 0.9% of Fidus Investment shares are held by company insiders. Comparatively, 3.2% of Sixth Street Specialty Lending shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of recent ratings and price targets for Fidus Investment and Sixth Street Specialty Lending, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Fidus Investment	0	2	1	1	2.75
Sixth Street Specialty Lending	0	2	6	1	2.89

Fidus Investment presently has a consensus target price of $21.75, suggesting a potential upside of 16.94%. Sixth Street Specialty Lending has a consensus target price of $22.25, suggesting a potential upside of 20.27%. Given Sixth Street Specialty Lending’s stronger consensus rating and higher probable upside, analysts plainly believe Sixth Street Specialty Lending is more favorable than Fidus Investment.

Risk and Volatility

Fidus Investment has a beta of 0.72, indicating that its stock price is 28% less volatile than the S&P 500. Comparatively, Sixth Street Specialty Lending has a beta of 0.73, indicating that its stock price is 27% less volatile than the S&P 500.

Profitability

This table compares Fidus Investment and Sixth Street Specialty Lending’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Fidus Investment	52.87%	10.71%	5.81%
Sixth Street Specialty Lending	37.99%	12.71%	5.92%

Earnings and Valuation

This table compares Fidus Investment and Sixth Street Specialty Lending”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Fidus Investment	$155.87 million	4.53	$82.40 million	$2.34	7.95
Sixth Street Specialty Lending	$449.05 million	3.90	$209.99 million	$1.81	10.22

Sixth Street Specialty Lending has higher revenue and earnings than Fidus Investment. Fidus Investment is trading at a lower price-to-earnings ratio than Sixth Street Specialty Lending, indicating that it is currently the more affordable of the two stocks.

Summary

Sixth Street Specialty Lending beats Fidus Investment on 12 of the 16 factors compared between the two stocks.

About Fidus Investment

Fidus Investment Corporation is a business development company. It specializing in leveraged buyouts, refinancings, change of ownership transactions, recapitalizations, strategic acquisitions, mezzanine, growth capital, business expansion, lower middle market investments, debt investments, subordinated and second lien loans, senior secured and unitranche debt, preferred equity, warrants, subordinated debt, senior subordinated notes, junior secured loans, and unitranche loans. It does not invest in turnarounds or distressed situations. The fund prefers to invest in aerospace and defense, business services, consumer products and services including retail, food, and beverage, healthcare products and services, industrial products and services, information technology services, niche manufacturing, transportation and logistics, and value-added distribution sectors. It seeks to invest in companies based in United States. The fund typically invests between $5 million and $15 million per transaction in companies with annual revenues between $10 million and $150 million and an annual EBITDA between $3 million and $20 million, but it can occasionally invest in larger or smaller companies. It seeks to acquire minority equity stakes and board observation rights in conjunction with its investments.

About Sixth Street Specialty Lending

Sixth Street Specialty Lending, Inc. (NYSE: TSLX) is a business development company. The fund provides senior secured loans (first-lien, second-lien, and unitranche), unsecured loans, mezzanine debt, and investments in corporate bonds and equity securities and structured products, non-control structured equity, and common equity with a focus on co-investments for organic growth, acquisitions, market or product expansion, restructuring initiatives, recapitalizations, and refinancing. The fund invests in business services, software & technology, healthcare, energy, consumer & retail, manufacturing, industrials, royalty related businesses, education, and specialty finance. It seeks to finance and lending to middle market companies principally located in the United States. The fund invests in companies with enterprise value between $50 million and $1 billion or more and EBITDA between $10 million and $250 million. The transaction size is between $15 million and $350 million. The fund invests across the spectrum of the capital structure and can arrange syndicated transactions of up to $500 million and hold sizeable positions within its credits.