Saratoga Investment (NYSE: SAR) keeps $0.75 dividend alive with $406.8m liquidity — can it last through 2026?

Saratoga Investment Corporation (NYSE: SAR) has made a clear statement this quarter: confidence still pays. The New York-based business development company ended its fiscal second quarter with $406.8 million in available liquidity and maintained its $0.75 per share quarterly dividend, defying an environment where most lenders are cutting exposure, not expanding it.

The results—covering the three months ended August 31, 2025—show a company leaning on balance-sheet flexibility as much as on portfolio strength. While adjusted net investment income came in lighter than expected, Saratoga’s management has chosen to double down on consistency rather than conservatism.

How Saratoga’s $406.8 million liquidity position defines its playbook for a tougher lending cycle

Liquidity has become Saratoga’s defensive and offensive weapon rolled into one.

The BDC reported $200.8 million in cash and equivalents, another $70 million in credit facility headroom, and $136 million in un-drawn SBA debentures, bringing total available liquidity to $406.8 million. That sum gives Saratoga one of the healthiest cushions among mid-tier BDCs, providing room to back existing portfolio companies or capture new deals when market spreads reset.

In plain English, it’s dry powder—and a lot of it.

Executives have framed this not as idle cash but as strategic capacity. In recent calls, they emphasized that in a market where competition for quality paper is fierce, timing matters more than speed. Having that liquidity allows Saratoga to wait for attractive pricing rather than chase yield at the cost of credit quality.

That optionality could prove decisive over the next few quarters as sponsor activity remains patchy and risk premiums widen. Saratoga’s ability to fund growth internally, without tapping equity markets aggressively, keeps dilution risk low—a signal investors typically reward.

What sustaining a $0.75 dividend says about management confidence and income coverage risk

Keeping the $0.75 dividend—equating to a 12.3 percent annualized yield—is both a vote of confidence and a gamble. Saratoga’s adjusted net investment income stood at $0.58 per share, meaning the dividend slightly outstripped earnings coverage this quarter. That imbalance raises the usual BDC question: how long can under-earned distributions stay credible?

Management insists the shortfall is transitory. Liquidity, they argue, gives the firm runway until new originations begin contributing higher yields. They’ve pointed to repayments of lower-yielding loans and reinvestment into first-lien structures averaging about 11 percent yields as the margin-rebuilding mechanism.

Still, the optics are bold. Paying a dividend beyond NII coverage signals faith in future earnings recovery but also opens scrutiny if rates compress further. Saratoga’s decision to maintain its payout contrasts with peers who trimmed distributions in similar conditions—suggesting the company wants to be seen as reliable income stock material, even if that means short-term strain on coverage ratios.

Investors can choose to reinvest dividends via Saratoga’s DRIP program at a 5 percent discount, reinforcing retention without cash drag—a subtle but shareholder-friendly lever.

Why Saratoga’s NAV growth and low non-accruals strengthen its credibility in a volatile quarter

If the dividend raised eyebrows, asset quality steadied them.

Saratoga’s net asset value climbed to $410.5 million, or $25.61 per share, from $25.52 the previous quarter. That improvement, though modest, underscores stable mark-to-market values in a quarter when many BDCs saw markdowns.

The portfolio continues to show near-zero stress: only one investment remains on non-accrual, accounting for just 0.2 percent of fair value. That’s exceptionally low for a middle-market credit book. It gives credibility to Saratoga’s claim that its underwriting discipline—especially its focus on first-lien senior secured loans—is paying off.

During the quarter, the firm originated $52.2 million in new investments while recording $29.8 million in repayments, resulting in modest net portfolio growth. The weighted average portfolio yield sits near 10.4 percent, while total return on equity over the last twelve months reached 9.1 percent, ahead of the BDC industry average of around 7 percent.

The small uptick in NAV might seem incremental, but in the yield-driven BDC universe, maintaining or lifting NAV while paying double-digit distributions is no small feat. It signals credit stability—a key sentiment driver for institutional holders wary of erosion in book value.

How analysts view Saratoga’s balance between yield ambition and deployment discipline

Analysts covering Saratoga are split between admiration and caution.

Supporters see the $406 million liquidity as a competitive moat: it lets Saratoga move when others are capital-constrained, potentially securing higher-quality credits at better spreads. Critics, however, worry that under-earning the dividend—even temporarily—could pressure future payout credibility if originations stall.

Broker research has also highlighted Saratoga’s small collateralized loan obligation (CLO) allocation—around 5 percent of the portfolio—as a measured diversification tactic. CLO tranches offer incremental yield but add structural complexity. Management says the exposure is “modestly sized and opportunistic,” implying no appetite to scale it aggressively.

Another discussion point is the company’s AI-sensitive software holdings within its tech portfolio. Executives noted they are reviewing AI-related disruption risk, especially among recurring-revenue SaaS borrowers whose pricing models could be squeezed by automation shifts. That self-awareness has been interpreted positively by credit analysts tracking thematic risk factors.

From an institutional sentiment standpoint, funds see Saratoga as a steady-income BDC rather than a growth engine. Its shares trade close to book value, reflecting a cautious equilibrium: investors trust the management discipline but await clearer evidence of dividend coverage improvement before re-rating the stock.

What the next phase could reveal about Saratoga’s dividend sustainability and growth narrative

The next few quarters will test Saratoga’s ability to turn liquidity into productive assets. The BDC model rewards those who deploy efficiently without inflating leverage—and Saratoga’s current regulatory leverage ratio of 166 percent leaves moderate headroom.

The company has an active ATM equity program worth up to $300 million, giving flexibility to raise growth capital incrementally. Yet management seems intent on prioritizing internal funding first—a stance that aligns with shareholder expectations. If yield opportunities rise, Saratoga can expand without jeopardizing balance-sheet stability.

Market watchers will track whether adjusted NII climbs closer to dividend parity, how originations offset repayments, and whether non-accruals remain near zero. Even small improvements could validate the strategy of holding the payout line.

Should credit conditions tighten further, Saratoga’s liquidity could shift from comfort blanket to competitive weapon. The ability to deploy into distressed or repriced assets at favorable terms is where large cash buffers translate into outperformance. In that sense, the firm’s approach is not merely defensive—it’s preparatory.

Why liquidity alone won’t save Saratoga Investment if its dividend strategy lacks disciplined capital deployment

Saratoga Investment stands at an interesting crossroad. Its liquidity moat of $406.8 million offers breathing space; its $0.75 dividend maintains investor loyalty; and its credit metrics show precision rather than bravado. Yet the real story is about timing—whether Saratoga can re-accelerate investment income before the coverage gap draws criticism.

If it does, the narrative turns from “yield risk” to “yield resilience.” If not, liquidity may start feeling like un-deployed potential.

For now, sentiment remains cautiously optimistic. The stock’s risk-reward equation favors patience. Investors appear willing to give management another few quarters to prove that liquidity and discipline can coexist.

As credit markets shift and rate cycles soften, Saratoga’s strategy—anchored on optionality and measured aggression—could define how smaller BDCs navigate a post-peak-rate world.