Despite a macroeconomic environment that caused market volatility and geopolitical risks, FS KKR Capital Corp. (NYSE:) demonstrated a solid start to 2025. On the , FSK's management team expressed confidence in the company's ability to navigate the uncertainty and deliver for shareholders. FSK is actively managing risk and maintaining stability through a combination of strategies, including the proactive measure of maintaining its previously announced quarterly distribution guidance. FSK is still an appealing BDC for income investors as its shares are trading at a discount to its net asset value (NAV), while producing a quarterly distribution of $0.70 per share comprised of a $0.64 base distribution and a $0.06 supplemental distribution. FSK has taken a disciplined investment approach, primarily focused on senior secured debt in the upper middle market, and made more investments in Q1 2025 than in any quarter in the previous year. I am still very bullish on FSK as I think the management team has done a fantastic job at overhauling the portfolio, and as the Fed starts to cut rates, FSK should be in a prime position to benefit from increased originations as the capital markets become less restrictive. I think that FSK is a prime candidate for generating double-digit yields in addition to capital appreciation in 2025. FSK has a strong balance sheet with disciplined leverage and ample liquidity, which puts it in a position of strength in the coming quarters. While I am bullish on FSK, investors should do their own due diligence as there are several risk factors that should be evaluated. As a BDC, FSK focuses on debt securities of private middle-market companies, which are harder to research as their financials are not readily available. These companies are more susceptible to economic downturns than large caps. FSK's portfolio companies don't have the same balance sheet strength which could increase FSK's risk for loan defaults as their portfolio companies may struggle to repay debts during periods of uncertainty. While FSK allocates 69% of its portfolio to senior secured loans and diversifies across industries to mitigate risk, this asset mix does not eliminate the potential for losses. FSK's distribution could fall under pressure as the Fed cuts rates if they're not able to increase their originations, and the supplemental distribution could come under pressure, followed by the normal distribution. Investors should do their own research to see if investing in FSK is right for their portfolio. FSK just delivered a strong start to 2025 with their Q1 earnings delivered a strong start to the year in Q1 2025 after surpassing their guidance of approximately $0.66 in net investment income (NII) as they generated $0.67. This was due to an increase in GAAP NII from $0.61 YoY. FSK reaffirmed its guidance for a $0.70 distribution in Q2, comprised of their traditional $0.64 base distribution and a supplemental distribution of $0.06, and confirmed a $2.80 distribution on a per share basis for the 2025 fiscal year. This is due to FSK's strong portfolio, which I am very bullish on. Over the past year, FSK has increased the amount of first-lien senior secured debt by 1.1% to 58.1% within its portfolio. Senior secured debt is my favorite because it gives the creditor the first claim on the borrower's assets if the borrower fails to repay the loan. Since FSK deals with many smaller companies, this tranche of debt puts them first in line to recover their funds from the sale of collateral, such as property or equipment. was hard at work in Q1, demonstrating robust origination activity as they funded approximately $2.0 billion of new investments. This represented their strongest origination quarter from both a total and net deployment perspective since 2022, driven by an expansive deal funnel, strong sponsor relationships, and repeat opportunities from incumbent borrowers in an M&amp;A market that hasn't been optimal for deals. FSK's portfolio is positioned defensively with a focus on senior secured investments. FSK has 63.3% of the portfolio at fair value tied to senior secured debt, and accounting for the joint venture, its total senior secured debt reached 72.6% in Q1. FSK's direct originations accounted for 97.5% of total investments by fair value. FSK's debt portfolio has an average weighted annual yield of 10.8%, and its effective interest rate on borrowed capital is 5.5%, which creates a strong spread. FSK has 89.1% of its debt tied to floating-rate debt, which allows it to generate additional income compared to fixed rates. FS KKR FSK is positioned well for the future as its asset-based finance portfolio has contributed to its dividend income and portfolio diversification. The originations in the asset-based portfolio accounted for 19% of FSK's new investments which focus on secured or high-credit-score borrowers. FSK improved its credit quality metrics as non-accruals improved during Q1, as they decreased from 3.7% to 3.5% on a cost basis and 2.2% to 2.1% on a fair value basis. Non-accruals relating to assets originated by KKR Credit and the FS KKR Adviser were lower at 2% on a cost basis and 1% on a fair value basis. FSK finished Q1 with approximately $3.2 billion of available liquidity, including cash and availability under financing arrangements. FSK was also able to enhance its funding profile by closing its second middle market CLO, raising $380 million at a weighted average rate of SOFR plus 158 basis points. FSK also amended its Morgan Stanley () facility to reduce spreads and extend maturity. Management is executing its strategy effectively as they navigate a difficult environment and demonstrates financial stability with operational strength. I am excited to see how the rest of 2025 unfolds as FSK is in a strong position to grow its book of business. When I look at the and go through their metrics, FSK looks deeply discounted still, which is an opportunity for income investors. I compared FSK to 11 other BDCs and still believe this investment will deliver capital appreciation and double-digit yields throughout the remainder of the year. The BDCs I compare FSK to are: * Ares Capital () * Main Street Capital () * Prospect Capital Corporation () * Barings BDC () * Blue Owl Capital Corporation () * MidCap Financial Investment Corporation () * Goldman Sachs BDC () * Oaktree Specialty Lending Corporation () * Golub Capital BDC () * Gladstone Capital () * Sixth Street Specialty Lending () The amount of NII that a BDC generates is critical to my investment thesis because this is the profitability center of its business. When you invest in a BDC, you're investing in its ability to generate NII and pay a big distribution. FSK is producing the 2 nd largest amount of NII in the peer group I constructed with $788 million in NII over the TTM. I go a step further and look at the multiple I am paying on the NII of a company because I want to make sure I am getting a good deal. FSK trades at 7.52x its NII, which is under the peer group average of 8.79x. I think that FSK is very undervalued by these standards because investors are paying a low multiple for a large amount of NII being generated. Today, FSK is trading at a -9.41% discount to its NAV, which is enticing considering the amount of NII it produces. FSK is also producing a dividend yield of 13.46%, which is the 3 rd largest amount in its peer group. I think this is a strong sign that shares are undervalued, considering investors can get FSK's book of assets at a -9.41% discount and generate a yield on cost that exceeds 13%. In an environment where the risk-free rate of return is expected to decline, FSK emerges as a compelling investment opportunity. FSK kicked off 2025 with a robust Q1, exceeding its prior NII guidance and confirming its $0.70 quarterly distribution. Currently trading at just 7.52 times its NII and at a -9.41% discount to its NAV, FSK allows investors to acquire its assets at a bargain while locking in a double-digit yield. With a strengthening portfolio and proactive management driving significant origination activity, FSK remains one of the most undervalued BDCs. Its rare blend of income potential and growth prospects makes it an attractive option, prompting me to plan an increase in my position for the year ahead.

FS KKR Capital: Exceeding A 10% Yield After Outlining Q2 Guidance

FS KKR Capital Corp. (NYSE:) reported strong Q1 2025 results, exceeding net investment income (NII) guidance and reaffirming its $0.70 quarterly distribution. The company focuses on senior secured debt in the middle market, with a 10.8% average yield on its debt portfolio. It trades at a -9.41% discount to its net asset value (NAV) and offers a 13.46% dividend yield, making it an attractive investment for income-focused investors amid potential Fed rate cuts.