TriplePoint Venture Growth May Be on the Cusp of a Dividend Cut

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Written By Kevin MacDonald

TriplePoint Venture Growth BDC is likely heading for a dividend cut in the near term as its net asset value (NAV) and balance sheet quality continued to decline in the first fiscal quarter of 2024.

Despite supporting its $0.40 per-share quarterly dividend with net investment income (NII), the safety of this dividend is precarious. Considering the ongoing investment losses and the deteriorating fundamentals, the risk profile of TriplePoint Venture Growth appears skewed to the downside.

Why a Dividend Cut Seems Likely

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TriplePoint Venture Growth focuses on sectors such as technology and life sciences but has faced challenges from poor investment decisions, leading to a spike in non-accrual loans and non-performing loans.

In Q1 2024, the non-accrual percentage surged to 6.8%, an increase of 2.8 percentage points quarter-over-quarter. The BDC also realized $7.5 million in investment losses, contributing to a drop in its NAV.

The company’s net realized investment losses of $8.8 million were linked to two portfolio companies. According to the company’s 10Q, it had investments in five portfolio companies on non-accrual, representing a fair value of $47.1 million.

These non-performing loans have led to a significant contraction in NII, explaining the declining safety margin for the dividend. In Q1 2024, TPVG generated $15.5 million in NII, a decline of 16%.

Weakening Distribution Coverage

TriplePoint Venture Growth’s portfolio assets generated $0.41 per share in NII in Q1 2024, down from $0.53 per share in the prior year. This 22.3% decline in NII is due to the underperformance of its loans. With a $0.40 per-share quarterly dividend, the BDC had a distribution coverage ratio of 1.03X, down from 1.29X in FY 2023.

Although it has not yet failed to support its dividend with NII, it is close to doing so. One more underperforming investment could lead to a situation where the BDC can no longer cover its dividend with NII. Currently, TPVG’s shares yield 17%, indicating market distress.

Deteriorating Net Asset Value

TriplePoint Venture Growth’s poor investment decisions have led to significant losses in NAV. As of the latest quarter, the NAV stood at $9.02 per share, a 23% decline from the previous year. This declining trend is concerning, especially as TPVG trades at a premium to its NAV. Shares of TPVG currently trade at 1.04X book value, below the three-year average price-to-book ratio of 1.09X. In comparison, rivals like Hercules Capital (HTGC) and Horizon Technology Finance (HRZN) are priced at higher P/NAV ratios due to better performance and fewer non-accrual issues.

Given the elevated dividend risk, investors should seek a discount to NAV before considering a position in TPVG. A 10% discount to NAV, considering TPVG’s high non-accrual percentage, implies a potential buy price of $8.11 per share.

Risks with TriplePoint Venture Growth

The primary risks for TPVG include persistent investment losses due to poor underwriting, a high non-accrual percentage indicating future loan charge-offs, a falling NAV, and weakening distribution coverage. These factors suggest that a dividend cut is likely in the near future.

Looking Ahead

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TriplePoint Venture Growth has been a promising investment for dividend seekers in the past, offering high distribution coverage and a well-performing portfolio. However, those times appear to be over. With just 1.03X distribution coverage, the likelihood of a dividend cut is high, which could negatively impact the company’s valuation.

At this point, the odds are stacked against TriplePoint Venture Growth, and dividend investors should approach its massive 17% yield with caution.


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