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Why Shares of Newtek Business Services Are Falling Today

What happened

Shares of business development company Newtek Business Services (NASDAQ:NEWT) traded nearly 13% lower as of 11 a.m. EDT after an analyst downgraded the company.

So what

An analyst from Compass Point downgraded Newtek from a buy rating to neutral but also raised the price target on the company from $33 per share to $38 per share. Shares currently trade around $33.60.

The company reported net investment income in the first quarter of this year of $0.68 per share, up from a loss of a penny reported in the first quarter of 2020.

Picture of a person's hand drawing a squiggly line moving downward.

Image source: Getty Images.

Meanwhile, the company also raised its dividend guidance, the primary way it returns capital to shareholders. Newtek is now increasing its annual dividend guidance to a range of $3 to $3.30 per share, up from previous guidance of $2.40 to $2.90 per share. Additionally, the company recently declared a second-quarter dividend of $0.70 per share, up 25% from the $0.56 dividend it paid in the second quarter 2020.

Now what

Despite the downgrade, Compass Point did upgrade its price target, and Newtek revised its guidance upward as well, so there is still upside here. The company has also only paid $1.20 in dividends in the first half of the year thus far, so to hit its guidance, dividends paid out in the second half of the year should outpace the first half.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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