Sixth Street Specialty Lending (NYSE:TSLX) versus Kayne Anderson BDC (NYSE:KBDC) Critical Review

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

Institutional & Insider Ownership

70.3% of Sixth Street Specialty Lending shares are owned by institutional investors. 3.2% of Kayne Anderson BDC shares are owned by insiders. Comparatively, 3.3% of Sixth Street Specialty Lending shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Profitability

This table compares Kayne Anderson BDC and Sixth Street Specialty Lending’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Kayne Anderson BDC	39.74%	10.23%	5.15%
Sixth Street Specialty Lending	37.99%	12.71%	5.92%

Analyst Ratings

This is a summary of recent ratings and recommmendations for Kayne Anderson BDC and Sixth Street Specialty Lending, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Kayne Anderson BDC	0	1	3	0	2.75
Sixth Street Specialty Lending	0	2	6	1	2.89

Kayne Anderson BDC currently has a consensus target price of $15.13, suggesting a potential upside of 5.81%. Sixth Street Specialty Lending has a consensus target price of $21.94, suggesting a potential upside of 15.53%. Given Sixth Street Specialty Lending’s stronger consensus rating and higher probable upside, analysts plainly believe Sixth Street Specialty Lending is more favorable than Kayne Anderson BDC.

Dividends

Kayne Anderson BDC pays an annual dividend of $1.60 per share and has a dividend yield of 11.2%. Sixth Street Specialty Lending pays an annual dividend of $1.84 per share and has a dividend yield of 9.7%. Kayne Anderson BDC pays out 120.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. 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.

Volatility and Risk

Kayne Anderson BDC has a beta of 0.04, meaning that its stock price is 96% less volatile than the S&P 500. Comparatively, Sixth Street Specialty Lending has a beta of 0.66, meaning that its stock price is 34% less volatile than the S&P 500.

Earnings and Valuation

This table compares Kayne Anderson BDC 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
Kayne Anderson BDC	$235.82 million	4.04	$93.71 million	$1.33	10.75
Sixth Street Specialty Lending	$449.05 million	4.02	$209.99 million	$1.81	10.49

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

Summary

Sixth Street Specialty Lending beats Kayne Anderson BDC on 13 of the 17 factors compared between the two stocks.

About Kayne Anderson BDC

Kayne Anderson BDC Inc. is a business development company which invests primarily in first lien senior secured loans, with a secondary focus on unitranche and split-lien loans to middle market companies. Kayne Anderson BDC Inc. is based in CHICAGO.

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.