Gladstone Capital Corporation invests in small and medium sized private businesses, seeking to achieve returns from current income and capital gains through debt and equity investments. Gladstone Capital primarily makes three types of loans to such businesses: senior term loans, senior subordinated loans, and junior subordinated loans. Loans range from $5 million to $30 million with terms of up to seven years. Gladstone Capital’s equity investments typically take the form of preferred or common equity (or warrants or options to acquire the foregoing). Historically, as Gladstone Capital has primarily been a debt fund, it aims to maintain a portfolio consisting of approximately 95% debt investments and 5% equity investments, at cost.
Gladstone Commercial Corporation is a real estate investment trust (“REIT”) that pays monthly dividends to its shareholders and owns net leased industrial, commercial, and retail real property and selectively makes long-term industrial and commercial mortgage loans. Typically, our investments range from $5 million to $20 million. Gladstone Commercial’s portfolio of real estate is leased to a wide cross section of tenants ranging from small businesses to large public companies, many of which are corporations that do not have publicly-rated debt. Gladstone Commercial intends to continue to enter into purchase agreements for real estate with existing triple net leases with terms of approximately 10 to 15 years, with built in rental increases.
Gladstone Investment Corporation is a BDC that pays monthly dividends to its shareholders. Operating primarily as a buyout fund, GAIN invests in small and medium sized private businesses. It seeks to achieve returns from current income and capital gains through its debt and equity investments. When funding a buyout, GAIN generally provides a combination of equity and debt. The loans typically are senior term loans and, senior and junior subordinated loans. Loans range from $5 million to $30 million with terms of up to seven years, and the equity investments take the form of preferred or common equity (or equity equivalents). Gladstone Investment aims to maintain a portfolio consisting of approximately 80% debt investments and 20% equity investments, at cost.
Gladstone Land Corporation is the newest Gladstone company since going public in January 2013. It invests in farmland located in major agricultural markets in the United States that it leases to corporate and independent farmers. The company currently owns farms predominantly concentrated in locations where its tenants are able to grow row crops, such as berries, lettuce and melons, which are planted and harvested annually or more frequently. The company also has the option to acquire property related to farming, such as storage facilities utilized for cooling cops, processing plants, packaging facilities and distribution centers. This is the only public company that I know of that actually invests in farmland.
My personal goal is to increase my portfolio by 8.00% per year through a combination of dividends and capital gains by investing in companies that increase at this rate or higher. Normally when I’m researching companies I’m looking at companies that distribute between 2.50% and 4.00% in dividends and 4.00% to 6.50% in capital gains. In the case of companies organized as MLPs, BDCs, and REITs, I’m generally looking at companies that distribute 8.00% in dividends with only a slight increase in capital gains. In the case of the Gladstone Companies, GLAD has a current yield of 8.50%, GOOD has a current yield of 8.30%, GAIN has a current yield of 8.60%, and LAND has a current yield of 8.90%. All of these companies distribute in excess of 8.00% in dividends at their current prices.
The Gladstone Company is committed to distributing dividends on a monthly basis from each of their four companies. GLAD has been paying dividends continuously since 2001. GOOD has been paying dividends continuously since 2003. GAIN has been paying dividends continuously since 2005. LAND has been paying dividends continuously since 2013.
Another benefit associated with three of these companies is that Gladstone Capital, Gladstone Commercial and Gladstone Investment are each listed on the options exchange. Therefore a short put strategy can be used to enter these trades at reduced prices while a short call strategy can be used to augment the dividends and increase the overall yield associated with ownership. I don’t expect these companies to lose value over time but any increase in yield over 8.00% due to a combination of dividends and options would offset any potential loss in capitalization due to a fall in price. This provides a nice buffer in case things do not go as expected.
The Gladstone Company and all of it’s sub-companies are led by David Gladstone, author of the books “Venture Capital Investing: The Complete Handbook for Investing in Private Businesses for Outstanding Profits” and “Venture Capital Handbook: An Entrepreneur’s Guide to Raising Venture Capital”. He is well known in the investing community and his strategies are detailed in his two books.
All four of these companies exceed my minimum requirements for ownership so I expect to accumulate positions in each of these companies in the near future. As usual I will begin by buying odd lots and adding to those positions over time as I become more comfortable with owning them and I begin to understand which of the four is the better company.
As usual, this is not a recommendation for anyone else to accumulate these shares. This is simply a statement of a possible course of action I may take in the future.
Good Luck and Good Trading.