Considering The Dividend Safety Of Compass Diversified Holdings' Preferred Issues

Compass Diversified reported 2019 fourth-quarter and full-year results in late February. Positioning for acquisition, the company had more capital availability than at any time in its history.
In mid-March, Compass announced the acquisition of Marucci Sports, a niche but dominant supplier in the baseball and softball markets.
Even though the acquisition will impact its capital availability, Compass is still well-positioned to cover the distributions of its three preferred stock issues.
My investment thesis regarding my investment club holding preferred shares of Compass Diversified Holdings (CODI) remains intact. The company's November 2019 issue of its Series C preferred (CODI.PC) will likely be on our radar when we do start reinvesting. The company had positioned for a sizeable acquisition which meant its capital position was at its healthiest. Therefore, while the company and the rest of the world brace in crisis, the distributions on its preferred issues appear adequately covered in the near-term.
I'm certainly not qualified to wax poetic about the market demise of late or the ongoing threat of COVID-19. So, I don't intend to do so.
My investment club purposely opted to build a safer income stream in 2019 by venturing into preferred shares. When our position in the common shares of Compass Diversified doubled in November, we recouped our original investment and moved that portion into the first of the company's preferred issues.
Compass Diversified invests in and operates middle-market niche businesses in both the consumer and industrial sectors. It operates similarly to a business development company (BDC) or a private equity firm. Like a BDC, Compass is both the sole lender to its acquired businesses and the controlling investor who actively participates in the management of those businesses. But it is not regulated as a BDC and so not required to distribute over 90% of its profits to shareholders. In this market, this is an important distinction.... Read more