BDC concept is shown by businessman.
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Two dividend cuts in the last two quarters from this BDC, and we are buying.
Wait. What?
When do we ever chase one dividend cut, let alone two? Let me tell you when, my fellow contrarian!
FSK Dividend
Income Calendar
Let’s start with the fantastic yield. At 15.3%, FS KKR Capital Corp (FSK) has our attention. That doesn’t mean buy—we don’t chase headline yields around here without doing our homework. But in this case, management is redirecting the money saved from these cuts into share buybacks.
Which means we’ll likely see price appreciation as shares move closer to fair value. Plus, fewer shares outstanding make it easier for management to cover that fat dividend.
Right now, the rubber band is stretched wide on the pessimism surrounding FSK. Shares trade for just 58 cents on the dollar. Translation: in healthy markets, FSK trades closer to book value—a dollar of loans for a dollar of stock. (Which is 75% up from here.)
What is FSK? A business development company (BDC), a publicly traded fund that lends to small and mid-sized American businesses. It’s run by KKR, one of the most respected private credit shops on the planet.
The management team at KKR just put up $600 million in cash and committed capital to defend their beaten-up dividend stock. Their ante has our attention despite the disastrous headlines.
Now, what happened at FSK in the first place? Why is it so beaten up?
Well, BDCs as a group have been taken to the woodshed this year. The middle-market companies they lend to are under pressure, struggling to service their debt at higher rates. That credit pain flows straight through to the BDCs that fund them.
Historically, BDCs have lived in the safer corner of credit. They lend senior-secured to private American businesses and collect their interest payments like clockwork. Basically, they’re annuities… boring, predictable, yield-y.
But now the entire BDC universe is wrestling with the same headwinds. Credit spreads are widening and non-accruals (delinquent debtors!) are creeping higher across the sector. The clockwork annuity isn’t ticking.
FSK inherited a chunk of legacy investments from prior mergers, and management has spent the last several quarters writing them down. Net asset value (NAV), the per-share value of FSK’s loan portfolio, dropped from $20.89 to $18.83 in just the first quarter of 2026. Non-accruals (loans not paying interest) climbed for the third straight quarter to 4.2% of the portfolio.
In their May 11 statement, FSK’s top execs admitted “certain new non-accrual assets” continue to surface. Translation: more credit pain on the way.
That’s the bad news. The good news? This storm is all priced into the stock, and then some.
At 58 cents on the dollar, KKR sees value. So, last week, the management team announced four actions to close that discount window. Backing it up with a $600 million investment.
