Oxford Square’s 22% Yield Masks a Dangerous Math Problem

Oxford Square Capital Corp. (NASDAQ:OXSQ) advertises a output supra 22%, but the information tells a antithetic story. The organisation runs up of earnings, nett plus worth has collapsed, and the money borrowed heavy to enactment afloat. That operation deserves scrutiny earlier immoderate capitalist reaches for the income.

A concern nonrecreational interacts with a rising greenish arrow, symbolizing maturation successful the Business Development Company (BDC) sector.

READ: The expert who called NVIDIA successful 2010 just named his apical 10 AI stocks

Oxford Square is simply a Business Development Company that channels superior into middle-market companies and indispensable administer astatine slightest 90% of taxable income to shareholders. Its income comes from 2 sources: elder secured, floating-rate loans to firm borrowers, and equity tranches of Collateralized Loan Obligations (CLOs).

CLO equity sits astatine the bottommost of a indebtedness stack, absorbing losses archetypal but collecting currency travel aft elder bondholders are paid. When recognition markets are calm and defaults are low, CLO equity generates beardown distributions. When conditions deteriorate, those distributions compress quickly.

In Q4 2025, indebtedness investments contributed $5.3 cardinal of income portion CLO equity contributed $4.3 million, for a full of $10.4 cardinal successful concern income. The effectual output connected CLO equity fell from 9.7% successful Q3 2025 to 8.6% successful Q4 2025, a driblet of 110 ground points successful a azygous quarter.

The money pays $0.035 per stock monthly, which annualizes to $0.42 per share. At a caller terms adjacent $1.90, that implies a output conscionable supra 22%. Net concern income (NII), the existent net supporting the distribution, has been moving astatine $0.07 per stock successful some Q4 and Q3 2025. A quarterly organisation of 3 monthly payments astatine $0.035 totals $0.105 per quarter. NII covered lone 2 of those 3 months.

This spread has persisted each year. Full-year 2025 EPS came successful astatine $0.30 per share, portion the annualized organisation astatine the anterior $0.04 monthly complaint would person required $0.48 per share. The money chopped its organisation from $0.04 to $0.035 per share, and that simplification inactive did not align the payout with earnings. Distributions exceeding NII mechanically erode NAV implicit time.