NEWT’s Dividend at Risk: Analysis and Future Outlook
Investors in Newtek Business Services Corp (NEWT) may be alarmed to learn that the company’s dividend program is at risk of being cut. While the company has historically performed well, a closer look at its operations reveals some cause for concern. This article will analyze the present state of NEWT and its dividend, examining the factors that have led to its current position and discussing the outlook for the company going forward.
NEWT’s Dividend History
NEWT is primarily known as a business development and financing company, offering a range of services to small and medium enterprises (SMEs). Since its founding in 1998, NEWT has grown rapidly, with a market capitalization of over $600 million as of May 2019. The company has established itself as a reliable provider of financing solutions, and has also diversified its products and services over the years.
NEWT has a strong history of dividend growth, with annual dividends increasing steadily since 2013. This history of dividend growth has been an important aspect of NEWT’s appeal to investors, particularly those looking for reliable and consistent returns. As of June 2019, NEWT had a dividend yield of 8.15%, one of the highest in the financial services sector.
Why is NEWT at Risk of Cutting Its Dividend?
Despite its impressive record, however, there are reasons to believe that NEWT’s dividend program may be at risk of being cut. One key factor is the company’s recent performance. In its most recent financial results, NEWT reported a revenue of $61.8 million, a decrease of 3.3% from the same period in the previous year. This revenue decline was accompanied by a drop in net income, which fell from $11.3 million to $10.3 million.
Another concern is the company’s rising debt levels. In 2018, NEWT issued $50 million in unsecured notes with a maturity date of 2023. It also has a $100 million credit facility, which is used to finance its operations. While these debt levels are not necessarily unusual for a company of NEWT’s size and scope, they do represent a significant burden that the company will have to manage in the coming years.
It is also worth noting that NEWT has historically leveraged its balance sheet to fund its dividend program. In 2018, for example, NEWT paid out $42 million in dividends from a net income of $22 million, representing a payout ratio of almost 200%. This vulnerability to dividend cuts is compounded by the fact that the company has relatively few income sources; it relies heavily on its lending and advisory businesses for revenue.
The Outlook for NEWT’s Dividend
Given these concerns, it is understandable that investors are worried about the future of NEWT’s dividend program. While the company has not yet announced any plans to cut its dividend, it is clear that the program is at risk of being scaled back. Indeed, some analysts have already downgraded their outlook for NEWT, citing concerns about the company’s performance and financial position.
There are, however, some reasons to be optimistic about NEWT’s future. For one thing, the company has a strong track record of adapting to changing market conditions. It has demonstrated its ability to pivot its product offerings and evolve its business model as needed. This flexibility has helped it to weather previous economic downturns and will likely serve it well in the future.
Moreover, while there are certainly concerns about its debt levels, NEWT appears to be managing its liabilities effectively. The company’s credit facility, for example, has favorable terms that should allow it to continue financing its operations without significant difficulties. Additionally, NEWT is actively pursuing other avenues of growth, including expansion into new markets and acquisitions of complementary businesses.
NEWT is a well-established player in the financial services sector, with a history of impressive performance and dividend growth. However, recent developments suggest that the company may be at risk of scaling back its dividend program due to declining revenue, rising debt levels, and high payout ratios. Investors should monitor the company’s performance closely and be prepared for the possibility of a dividend cut. Nevertheless, NEWT’s flexibility and ability to adapt to changing circumstances suggest that it may be well-positioned to weather any challenges that lie ahead.