I first spotted an opportunity in KCAP Financial (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:
- 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.
- KCAP is selling at a very reasonable at just over 9x forward earnings for such a high yielder.
- 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).
- 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.