KCAP Financial: 12% Yielder Still Has Upside

Dec.20.12 | About: KCAP Financial (KCAP)

I first spotted an opportunity in KCAP Financial (NASDAQ:KCAP) for my income portfolio in early April when it was trading at $7 a share. This 10% plus yielder has been a stellar performer since then. Not only have the shares shot up to close to $9.50 a share but it also has raised and paid a dividend 33% higher than when I originally invested. Despite the run up in the stock, I am sticking with the shares as the company continues to provide positive catalysts.

Key recent catalysts for KCAP:

  • It announced in November that is was raising its dividend payout yet again commencing in the fourth quarter. It is raising the quarterly payout from 24 cents a share to 28 cents a share.
  • KCAP executives settled a minor action with the S.E.C. around overstated asset values during the financial crisis. The fines were minimal but helped resolve an overhang on the company.
  • Consensus earnings estimates for both FY2012 and FY2013 have risen in the last two months.
  • Stifel Nicolaus upgraded the shares from "hold" and "buy" in Mid-August.

KCAP Financial is a private equity and venture capital firm specializing in mid-market, buyouts, and mezzanine investments

4 additional reasons KCAP is still a solid income play at just under $9.50 a share:

  1. Based on the increased fourth quarter payout, KCAP yields almost 12% (11.87%) and has raised its payout by approximately 80% over the last two years.
  2. KCAP is selling at a very reasonable at just over 9x forward earnings for such a high yielder.
  3. Analysts expect over 15% revenue growth in FY2013 after more than a 30% sales gain in FY2012. The stock has a five year projected PEG of under 1 (.73).
  4. Earnings are showing a nice uptrend. KCAP earned 70 cents a share in FY2011, but it is on track for 87 cents in earnings in FY2012. Analysts have a consensus EPS projection of $1.02 in FY2013.

Disclosure: I am long KCAP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.