Compass Diversified's Unchanged Q4 Dividend

OK, strictly speaking Compass Diversified (CODI) is not a Business Development Company. CODI is not really a lender but a buyer of middle market businesses, what used to be called a mini conglomerate. Unlike other business buyers,though, CODI finances all its acquisitions internally, rather than having each portfolio company borrow from third party lenders. Nonetheless, we track the company because it is i) involved in the middle market which is the bread and butter business of the BDC industry, ii) pays a regular quarterly dividend. Speaking of dividends, Compass has been a very dependable dividend payer ever since its IPO in May 2006, and journeyed through the recession without any dividend reduction or suspension. In fact, CODI has been paying the same 34 cents a share quarterly dividend since the third quarter of 2008, and reiterated the same pay-out for the IVQ of 2010 today. The company was fortunate to have made a very successful sale of a portfolio company just before the Great Recession, which paid down debt and generated cash. Rather than pay out all the proceeds of such a sale, Compass retains the profits and pays them out over time in the form of distributions, along with ordinary income generated by its portfolio companies. During the last two years, cash generated by the business was often lower than the dividend liability, but Compass has always maintained a conservative balance sheet and access to enough liquidity to keep paying its shareholders in the amount to which they have become accustomed.... Read more

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