FS Investment Corporation (NYSE: FSIC) and Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) are both finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their valuation, analyst recommendations, institutional ownership, earnings, dividends, profitability and risk.

Dividends

FS Investment Corporation pays an annual dividend of $0.89 per share and has a dividend yield of 10.3%. Fifth Street Senior Floating Rate Corp. pays an annual dividend of $0.76 per share and has a dividend yield of 8.6%. FS Investment Corporation pays out 87.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Fifth Street Senior Floating Rate Corp. pays out 161.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. FS Investment Corporation is clearly the better dividend stock, given its higher yield and lower payout ratio.

Insider & Institutional Ownership

32.5% of FS Investment Corporation shares are owned by institutional investors. Comparatively, 23.3% of Fifth Street Senior Floating Rate Corp. shares are owned by institutional investors. 1.0% of FS Investment Corporation shares are owned by insiders. Comparatively, 0.4% of Fifth Street Senior Floating Rate Corp. shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Analyst Ratings

This is a breakdown of current recommendations and price targets for FS Investment Corporation and Fifth Street Senior Floating Rate Corp., as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
FS Investment Corporation 0 4 0 0 2.00
Fifth Street Senior Floating Rate Corp. 0 2 0 0 2.00

FS Investment Corporation presently has a consensus target price of $10.00, suggesting a potential upside of 15.61%. Fifth Street Senior Floating Rate Corp. has a consensus target price of $9.25, suggesting a potential upside of 4.64%. Given FS Investment Corporation’s higher possible upside, equities analysts plainly believe FS Investment Corporation is more favorable than Fifth Street Senior Floating Rate Corp..

Volatility & Risk

FS Investment Corporation has a beta of 0.98, meaning that its share price is 2% less volatile than the S&P 500. Comparatively, Fifth Street Senior Floating Rate Corp. has a beta of 0.34, meaning that its share price is 66% less volatile than the S&P 500.

Profitability

This table compares FS Investment Corporation and Fifth Street Senior Floating Rate Corp.’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
FS Investment Corporation 59.88% 8.92% 4.92%
Fifth Street Senior Floating Rate Corp. 29.89% 7.27% 3.83%

Earnings and Valuation

This table compares FS Investment Corporation and Fifth Street Senior Floating Rate Corp.’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
FS Investment Corporation N/A N/A N/A $1.02 8.48
Fifth Street Senior Floating Rate Corp. N/A N/A N/A $0.47 18.81

FS Investment Corporation is trading at a lower price-to-earnings ratio than Fifth Street Senior Floating Rate Corp., indicating that it is currently the more affordable of the two stocks.

Summary

FS Investment Corporation beats Fifth Street Senior Floating Rate Corp. on 10 of the 11 factors compared between the two stocks.

About FS Investment Corporation

FS Investment Corporation is an externally managed, non-diversified, closed-end management investment company. The Company’s investment objectives are to generate current income and long-term capital appreciation. Its portfolio consists primarily of investments in senior secured loans and second lien secured loans of the private United States middle market companies and subordinated loans of the private United States companies. It may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the over-the-counter market or directly from target companies as primary market or directly originated investments. It invests in a range of industries, including capital goods; consumer services; consumer durables and apparel; materials; commercial and professional services, and diversified financials. Its investment advisor is FB Income Advisor, LLC.

About Fifth Street Senior Floating Rate Corp.

Fifth Street Senior Floating Rate Corp. is a closed-end, non-diversified management investment company. The Company operates as a specialty finance company. The Company’s investment objective is to maximize its portfolio’s total return by generating current income from its debt investments while seeking to preserve its capital. The Company invests in portfolio companies primarily in the form of senior loans. The Company invests in senior secured loans, including first lien, unitranche and second lien debt instruments. The Company may also invest in unsecured loans, including subordinated loans, issued by private middle market companies, and senior and subordinated loans issued by public companies and equity investments. The senior loans that the Company targets have final maturities of 4 to 7 years. The Company seeks to invest in senior loans made primarily to private middle market companies. Fifth Street Management LLC is the investment advisor of the Company.

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