OXLC stock yields 22% and beats S&P 500: is it a good buy?

The Oxford Lane Capital stock price has moved into a bull market after surging by over 20% from its lowest level this year. OXLC has soared to $4.8 and is hovering at its highest level since March 11. So, is this 23% yielding company a good investment to buy and hold today?

What is Oxford Lane Capita, and why does it yield so much?

Oxford Lane Capital is a leading American company operating in the fast-growing credit industry. It is an investment company that invests in equity and junior debt tranches of Collateralized Loan Obligation (CLO) vehicles. These investments are collateralized by portfolios of senior loans with no exposure to the real estate industry.

Oxford also invests in warehousing facilities, which are financial entities that aggregate senior loans that may be used to form part of a CLO vehicle. The company now holds equity investments in almost 200 CLO structures, including of companies like Elmwood, Regatta, Ares, Wind River, and Ceder Funding.

Oxford Lane Capital stock price has jumped because of its strong financial performance as demand for credit jumped. It also soared after the company announced a new share repurchase program.

The company will repurchase up to $150 million worth of stock, a substantial amount since the company has a market cap of $1.5 billion. A share repurchase program help to boost a stock’s performance by reducing the number of outstanding shares, which then boosts its earnings per share.

The other potential catalyst for the OHLC stock price is the fact that interest rates will likely remain higher for a while. Goldman Sachs analysts expect that the Fed will deliver three rate cuts this year, bringing the terminal rate at 3.75%. Still, these are higher-than-average interest rates.

Read more: Oxford Lane Capital (OXLC) has a fat 20% yield: is it a buy?

OXLC and other large players in the industry do well when rates are rising. That’s because interest rates on CLOs tend to do well as well, which can lead to higher cash flows since CLOs have a floating rate. 

Analysts believe that Oxford Lane Capital’s business will do relatively well this year. The average estimate is that its revenue will be $372 million this year followed by $615 million next year. This explains why the average OXLC stock price forecast is $5.38, higher than the current $4.8.

Investors love OXLC for its strong historical performance and its high dividend yield. Its stock yields 22.4%, meaning that a $10,000 investment will bring in about $2,000 in interest each year. This dividend helps to offset the stock performance. For example, its stock dropped by 5% in the last 12 months, while the S&P 500 rose by 7.4%. However, its total return, with dividends included, was 16% compared to S&P 500’s 7.4%. OXLC has often beaten the S&P 500 because of this yield.

OXLC stock price analysis

OXLC chart by TradingView

The weekly chart shows that the OXLC share price has been in a strong uptrend in the past few months. It has formed an ascending channel that connects the lowest and highest swings since March 2023. It recently formed a giant hammer candlestick, a popular reversal sign. 

The stock has remained above the 50-day and 100-day moving averages, and is attempting to cross the key resistance at $4.80, the highest point in January 2022. Therefore, the path of the least resistance for the Oxford Lane Capital stock is bullish, with the next point to watch being at $5.0, its highest point in November last year.

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