Critical Contrast: Trinity Capital (NASDAQ:TRIN) & Sixth Street Specialty Lending (NYSE:TSLX)

Sixth Street Specialty Lending (NYSE:TSLX) and Trinity Capital (NASDAQ:TRIN) are both finance companies, but which is the better investment? We will compare the two businesses based on the strength of their profitability, valuation, dividends, institutional ownership, earnings, risk and analyst recommendations.

Volatility and Risk

Sixth Street Specialty Lending has a beta of 0.7, indicating that its share price is 30% less volatile than the S&P 500. Comparatively, Trinity Capital has a beta of 0.53, indicating that its share price is 47% less volatile than the S&P 500.

Dividends

Sixth Street Specialty Lending pays an annual dividend of $1.84 per share and has a dividend yield of 8.3%. Trinity Capital pays an annual dividend of $2.04 per share and has a dividend yield of 13.3%. Sixth Street Specialty Lending pays out 90.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Trinity Capital pays out 93.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Trinity Capital has increased its dividend for 1 consecutive years. Trinity Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation and Earnings

This table compares Sixth Street Specialty Lending and Trinity Capital”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Sixth Street Specialty Lending	$482.53 million	4.32	$220.02 million	$2.04	10.83
Trinity Capital	$237.69 million	4.89	$115.60 million	$2.19	7.01

Sixth Street Specialty Lending has higher revenue and earnings than Trinity Capital. Trinity Capital is trading at a lower price-to-earnings ratio than Sixth Street Specialty Lending, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a summary of current recommendations and price targets for Sixth Street Specialty Lending and Trinity Capital, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Sixth Street Specialty Lending	0	2	7	1	2.90
Trinity Capital	1	1	5	0	2.57

Sixth Street Specialty Lending presently has a consensus target price of $23.50, suggesting a potential upside of 6.41%. Trinity Capital has a consensus target price of $16.44, suggesting a potential upside of 7.08%. Given Trinity Capital’s higher probable upside, analysts plainly believe Trinity Capital is more favorable than Sixth Street Specialty Lending.

Institutional and Insider Ownership

70.3% of Sixth Street Specialty Lending shares are owned by institutional investors. Comparatively, 24.6% of Trinity Capital shares are owned by institutional investors. 3.3% of Sixth Street Specialty Lending shares are owned by company insiders. Comparatively, 6.4% of Trinity Capital shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Profitability

This table compares Sixth Street Specialty Lending and Trinity Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Sixth Street Specialty Lending	41.24%	13.20%	6.08%
Trinity Capital	50.49%	15.51%	7.00%

About Sixth Street Specialty Lending

Sixth Street Specialty Lending, Inc. (NYSE: TSLX) is a business development company. The fund provides senior secured loans (first-lien, second-lien, and unitranche), unsecured loans, mezzanine debt, and investments in corporate bonds and equity securities and structured products, non-control structured equity, and common equity with a focus on co-investments for organic growth, acquisitions, market or product expansion, restructuring initiatives, recapitalizations, and refinancing. The fund invests in business services, software & technology, healthcare, energy, consumer & retail, manufacturing, industrials, royalty related businesses, education, and specialty finance. It seeks to finance and lending to middle market companies principally located in the United States. The fund invests in companies with enterprise value between $50 million and $1 billion or more and EBITDA between $10 million and $250 million. The transaction size is between $15 million and $350 million. The fund invests across the spectrum of the capital structure and can arrange syndicated transactions of up to $500 million and hold sizeable positions within its credits.

About Trinity Capital

Trinity Capital Inc. is a business development company. It is a venture capital firm specializing in venture debt to growth stage companies looking for loans and/or equipment financing. Trinity Capital Inc. was founded in 2019 is based in Phoenix, Arizona with additional offices in the United States.