A Yield to Caution

Article Excerpt

HERCULES CAPITAL INC. $13 (New York symbol HTGC; Shares outstanding: 123.9 million; Market cap: $1.6 billion; Dividend yield: 10.1%; www.htgc.com) is a business development company (BDC). The company provides senior secured loans to high-growth venture capital-backed companies in innovative industries, including technology, life sciences, and sustainable and renewable technologies. Business development companies (BDCs) invest in small to medium-sized companies, usually by making loans that aren’t secured by real estate. They tend to have higher interest rates than banks would charge. BDCs are able to lend to companies that banks shy away from because of leveraged lending rules that were tightened as a result of the 2008 credit crisis. Because of that, careful underwriting and credit monitoring are essential for BDCs, which are often heavily involved with the companies they finance. Hercules yields a high 10.1%. But at the same time, that high yield reflects the risk of its investments—and that the dividend may not be sustainable. The company also faces increased competition from an expanding number of…

You are trying to access subscriber-only content.

To read this article, you may subscribe or sign in.
If you are already a subscriber, log in here.

If you wish to become a subscriber, click here. Or you may enjoy access to all our publications when you become a Member of Pat McKeough's Inner Circle Pro.