On Wednesday, Keefe, Bruyette & Woods adjusted their outlook on Newtek Business Services (NASDAQ:NEWT), reducing the shares price target from $16.00 to $13.00, while maintaining a Market Perform rating. The adjustment follows the company's recent announcement of a delay in its 10-K filing and the identification of material weaknesses in internal controls.
The firm's analyst noted that the decision by Newtek's Board to increase the dividend by a penny is seen as a move to align capital returns with the expectations of legacy shareholders. Previously, as a Business Development Company (BDC), Newtek was mandated to distribute 90% of its earnings to shareholders in the form of dividends.
Despite the dividend increase, the analyst highlighted that Newtek's Tangible Common Equity (TCE) remains at a robust 13.9%, indicating sufficient capital levels to support the raised capital distribution. The forecasted annual dividend of $0.76 per share is expected to represent a 35% payout ratio based on the firm's 2025 earnings per share estimate, with a current yield of 7.5%.
The price target reduction to $13.00 comes in the wake of the company's announcement made on Tuesday, regarding the delay in the 10-K filing. This delay, coupled with the discovery of material weaknesses in Newtek's internal controls, prompted the firm to update its model and adjust expectations for the company's financial performance.
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