Morgan Stanley Direct Lending Fund (NYSE:MSDL) versus Stellus Capital Investment (NYSE:SCM) Head-To-Head Review

Morgan Stanley Direct Lending Fund (NYSE:MSDL – Get Free Report) and Stellus Capital Investment (NYSE:SCM – Get Free Report) are both small-cap finance companies, but which is the better business? We will compare the two companies based on the strength of their profitability, valuation, dividends, earnings, analyst recommendations, institutional ownership and risk.

Insider and Institutional Ownership

13.2% of Stellus Capital Investment shares are owned by institutional investors. 0.3% of Morgan Stanley Direct Lending Fund shares are owned by company insiders. Comparatively, 4.2% of Stellus Capital Investment shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of current recommendations for Morgan Stanley Direct Lending Fund and Stellus Capital Investment, as provided by MarketBeat.

Morgan Stanley Direct Lending Fund currently has a consensus price target of $15.17, suggesting a potential upside of 14.77%. Stellus Capital Investment has a consensus price target of $9.25, suggesting a potential upside of 39.01%. Given Stellus Capital Investment’s higher probable upside, analysts clearly believe Stellus Capital Investment is more favorable than Morgan Stanley Direct Lending Fund.

Dividends

Morgan Stanley Direct Lending Fund pays an annual dividend of $1.80 per share and has a dividend yield of 13.6%. Stellus Capital Investment pays an annual dividend of $1.00 per share and has a dividend yield of 15.0%. Morgan Stanley Direct Lending Fund pays out 260.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Stellus Capital Investment pays out 98.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Stellus Capital Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility & Risk

Morgan Stanley Direct Lending Fund has a beta of 0.58, indicating that its stock price is 42% less volatile than the S&P 500. Comparatively, Stellus Capital Investment has a beta of 0.71, indicating that its stock price is 29% less volatile than the S&P 500.

Earnings and Valuation

This table compares Morgan Stanley Direct Lending Fund and Stellus Capital Investment”s revenue, earnings per share and valuation.

Morgan Stanley Direct Lending Fund has higher earnings, but lower revenue than Stellus Capital Investment. Stellus Capital Investment is trading at a lower price-to-earnings ratio than Morgan Stanley Direct Lending Fund, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Morgan Stanley Direct Lending Fund and Stellus Capital Investment’s net margins, return on equity and return on assets.

Summary

Stellus Capital Investment beats Morgan Stanley Direct Lending Fund on 9 of the 15 factors compared between the two stocks.

About Morgan Stanley Direct Lending Fund

(Get Free Report)

Morgan Stanley Direct Lending Fund is a business development company. It is a non-diversified, externally managed specialty finance company focused on lending to middle-market companies. Morgan Stanley Direct Lending Fund is based in NEW YORK.

About Stellus Capital Investment

(Get Free Report)

Stellus Capital Investment Corporation is a business development company specializing in investments in private middle-market companies. It invests through first lien, second lien, unitranche, and mezzanine debt financing, often with a corresponding equity investment. The fund prefers to invest in US and Canada. The fund seeks to invest in companies with an EBITDA between $5 million and $50 million.