FS KKR Capital

FSK

Market cap $4.51B

There is a major market disconnect in which there are blue-chip dividend payers offering 11%+ yields right now, despite posting strong fundamentals. I discuss why the market is bearish on these stocks and why I think the fears are overblown. I also share two high-yield stocks that I think are attractive buys at current pricing.

Stake increased by 708,930 shares, with position value rising by $10.50 million New holding: 723,508 shares valued at $10.80 million The position now represents 1.46% of fund AUM, which places it outside the fund's top five holdings

FS KKR Capital shifts to a performance-based dividend policy, aiming to improve coverage and address high non-accruals impacting net investment income. The new policy introduces a fixed $0.45/share quarterly dividend plus a variable supplement, resulting in a 21% dividend cut but enhancing sustainability. I expect a dividend coverage ratio of 104-105% in Q1 '26 as dividend reset gets implemented. Non-accrual correction creates an upside catalyst.

FSK KKR Capital (FSK) sets a new dividend policy for 2026, targeting a 10% yield, above the BDC sector average. Despite an attractive valuation at 0.71x P/NAV and improved non-accruals, FSK's net investment income and dividend coverage continue to decline. Management's dividend reduction anticipates lower base rates, upcoming debt maturities, and a challenging investment environment, with 88% floating rate exposure.

The Fed's dovishness has been the key driver for the BDC sell-off. The idea is that lower interest rates should lead to lower dividends (i.e., BDCs cutting their dividend across the board). While it is a process that takes time, the current data show that many BDCs are well-positioned to safeguard their existing dividends.

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The BDC sector average discount to NAV is 15%. Yet, there are some players that trade at even 30%+ discounts and thus offer very compelling yields. The logic would tell that such BDCs are certainly meant for pure speculation.

FS KKR Capital Corp remains under pressure with weak earnings, poor dividend coverage, and limited new investment activity, justifying a continued sell rating. Despite FSK trading at a historically deep 30.74% discount to NAV and offering a 16.8% dividend yield, payout sustainability is questionable as distributions exceed net investment income. FSK's portfolio quality is challenged by persistently high non-accrual rates compared to peers and declining net investment activity, further limiting near-term growth potential.

FS KKR Capital Corp. just reported Q3 results. The stock has declined by over 30% since I last covered it. I take another look to see if FSK is worth buying after it signaled a steep base dividend cut in 2026.

FS KKR Capital Corp ( FSK ) Q3 2025 Earnings Call November 6, 2025 9:00 AM EST Company Participants Anna Kleinhenn Michael Forman - Chairman & CEO Daniel Pietrzak - President, Chief Investment Officer & Director Steven Lilly - Chief Financial Officer Conference Call Participants Finian O'Shea - Wells Fargo Securities, LLC, Research Division Arren Cyganovich - Truist Securities, Inc., Research Division Ethan Kaye - Lucid Capital Markets, LLC, Research Division Kenneth Lee - RBC Capital Markets, Research Division Melissa Wedel - JPMorgan Chase & Co, Research Division Paul Johnson - Keefe, Bruyette, & Woods, Inc., Research Division Heli Sheth - Raymond James & Associates, Inc., Research Division Presentation Operator Good morning, ladies and gentlemen. Welcome to the FS KKR Capital Corp.'s Third Quarter 2025 Earnings Conference Call.