06. Oaktree Specialty Lending Corporation (NASDAQ:OCSL)
Number of Hedge Fund Holders: 9
Oaktree Specialty Lending Corporation (NASDAQ:OCSL) stands out as a solid business development company (BDC) stock, making it a key candidate for inclusion in the article 10 Best BDC Stocks To Invest In. The company specializes in providing capital to small and mid-sized businesses across a variety of industries, making it a valuable player in the middle market lending space. Oaktree Specialty Lending Corporation (NASDAQ:OCSL) investment approach focuses on first and second lien debt, mezzanine loans, and equity investments, providing a diversified portfolio that balances risk and reward. Its exposure to industries like healthcare, technology, and consumer services strengthens its potential for stable returns, especially in an uncertain economic environment.
Despite missing earnings expectations in Q3 2024, with a reported EPS of $0.55 compared to the expected $0.57, Oaktree Specialty Lending Corporation (NASDAQ:OCSL) remains fundamentally strong. The company’s net asset value (NAV) per share fell slightly to $18.19, down from $18.72 in the previous quarter, primarily due to markdowns in non-accrual investments. However, OCSL continues to perform well, with its portfolio showing a significant focus on first lien debt investments, now accounting for 82% of the portfolio. This strategic shift towards senior secured debt is aimed at reducing risk while maintaining solid returns.
Oaktree Specialty Lending Corporation (NASDAQ:OCSL) offers a robust dividend yield, a key metric for income-focused investors. The company declared a quarterly dividend of $0.55 per share, which remains consistent with the previous quarter. This dividend, coupled with the company’s management fee reductions, reflects OCSL’s commitment to delivering value to shareholders. The fee reduction is expected to increase annual adjusted net investment income by approximately $12 million or $0.15 per share, further enhancing Oaktree Specialty Lending Corporation (NASDAQ:OCSL) attractiveness as a BDC stock.
Additionally, Oaktree Specialty Lending Corporation (NASDAQ:OCSL) maintains a healthy liquidity position, with $828 million available on credit facilities and $96 million in cash at the end of Q3. With a solid leverage ratio of 1.1 times and continuous strong origination activity, OCSL remains well-positioned to navigate market volatility and capitalize on new investment opportunities.
Alphyn Capital Management stated the following regarding Oaktree Specialty Lending Corporation (NASDAQ:OCSL) in its first quarter 2024 investor letter:
“Oaktree Specialty Lending Corporation (NASDAQ:OCSL): We previously owned the company but exited after Brookfield acquired its parent, Oaktree, and redeployed the capital at the top of the ownership stack in Brookfield. I reinvested in the fourth quarter of last year, given the attractive yield of 11% in the current high interest rate environment, approximately double that of treasuries, but not double the risk in my view.
OCSL’s $3 billion portfolio consists primarily of fixed income investments across 146 companies, with a strong focus on senior debt (78% first lien, up from 54% when Oaktree first took over management of the portfolio) and a flexible mandate that allows them to invest in liquid credit markets and secondaries, enabling them to capitalize on market dislocations. As part of the Oaktree group, it benefits from access to the parent’s extensive syndication platform, credit expertise, and resources to manage and work out the occasional loan delinquency.”
