Saratoga Investment is a New York middle-market business development company whose income engine has fallen behind the dividend it still pays. The latest completed quarter ended May 31, 2026. Net investment income, the cash the loan book produces after expenses, came in at forty-seven cents a share. The quarterly distribution remained seventy-five cents. That gap is the investment debate. Book value also slid as the firm wrote Pepper Palace to zero and marked Exigo and Chronus lower, while a refinancing replaced cheap legacy notes with higher-coupon paper. The equity is no longer being priced as a clean first-lien compounder.
Assets under management still grew. Fair value reached one point one three billion on about thirty-one million of net originations, including two new platforms. First-lien loans remain more than four-fifths of the book, and nonaccruals sit at a rounded zero of fair value after the Pepper Palace write-off. That credit surface looks tidy. The income surface does not. Adjusted net investment income covered only about three-fifths of the cash sent to shareholders. Last-twelve-month return on equity compressed even while it still beat the thinner industry print. Cash built through the quarter, which is dry powder and also a drag until it is put back to work.
The shares closed at $17.64 on the publication date. That price is a seventy-six cent multiple of the stated net asset value. The cash yield on the annualized dividend looks rich, and current earning power does not support it on a covered basis. The market is paying for a first-lien book that still originates, and haircutting it for an uncovered distribution, two red-watchlist names, and a cost of funds that has reset higher. The next print, scheduled after the August quarter, is the first clean test of whether cash deployment and the higher coupon stack close any of that gap.