Dividend

Our dividend of 6.875p per Ordinary Share remains cash covered at 1.00x (2024: 1.06x). The level of cash cover is lower than the previous year, due in part to “cash drag”, referring to cash held over the year reducing the Fund’s level of investment income and less capitalised interest received.

The repayment of capitalised interest is an essential component of the Company’s cash cover. However, given that its timing is tied to the eventual repayment or sale of the Company’s assets, it is unevenly distributed over the life of the Company, which can result in fluctuations in the dividend cash cover. This also affected this year’s cash cover.

In addition, the share buybacks, while being accretive to NAV, free up less cash than cash generated by extending new loans.

The Board has also considered the ratio of dividends per share to earnings per share, which is 137% (2024: 105%). While a ratio of more than 100% is undesirable, it does not imply that the dividend is unsustainable, as the ratio is driven in part by unrealised mark-to-market adjustments in the carrying value of performing loans – this type of price adjustment does not affect the long-term income-generating ability of those loans. Moreover, the ratio does not reflect the NAV benefits of the share buyback, which creates capital value in an economic sense, but this is not captured in earnings per share.

Paying a stable, attractive and covered dividend is an important part of the Company’s value proposition to investors The Board believes that the current level can and will be maintained. However, the Board is mindful of the increased risk environment and the fact that interest rates are forecast to fall, and so will keep the level of dividend under review to ensure that it remains affordable and sustainable.