Triangle Capital Corporation (TCAP) is a business development company or "BDC" that is focused on financing and investments in smaller and mid-sized companies. The funds it provides are often used for leveraged buyouts, management buyouts, recapitalizations, and acquisitions. A typical investment could range between $5 million to $25 million and be in the form of subordinated debt with warrants, loans, or equity. Triangle is able to offer shareholders a generous dividend since it borrows at low rates and lends money out at higher rates. As a business development company, it is designed to pay most of what it earns out to investors. Recently, the stock has experienced a pullback which appears to be a solid buying opportunity.
As the chart above shows, Triangle shares were trading at $30 in March. However, a recent pullback has the stock at about $27. This stock has been in an uptrend, and after the pullback, these shares are now at the low end of the recent trading range, but still within the levels as defined by uptrend. The low range of the uptrend is shown by the light blue line and the purple line shows the upper end of the range. Buying stocks after a decline, but which are still within an uptrend, is a strategy followed by many investors. Triangle shares have already started to bounce and could be poised to make another run for higher levels as it has been doing for months.
Since Triangle invests in a wide range of companies and in different industries, this keeps the portfolio well diversified, which reduces risks for investors. Here is a partial list of portfolio investments: Axxiom Manufacturing, which provides air blast equipment, Botanical Laboratories, which manufactures and markets vitamins, Carolina Beverage Group, Eckler's, which markets parts for classic cars, Hallmark Lighting and many others.
Another positive factor is that this company has a history of raising its dividend. In early 2007, the dividend was 15 cents per quarter, but it has been rising almost every year and it now pays a dividend of 54 cents per quarter. This provides investors with a yield of 8%, which is very generous in a low rate environment. Furthermore, the $2.16 (per year) dividend appears safe and sustainable as analysts expect the company to earn $2.31 per share this year and $2.46 for 2014.
Investors should consider downside risks, which include the fact that business development companies have been announcing secondary offerings with relative frequency. When companies raise capital, investors often react by selling shares. However, companies tend to try to issue new shares when the stock is trading at or near 52-week highs, and this is not the case now with Triangle. Portfolio risk is another factor because if a company begins to have financial problems, this could impact the value of the investment held by Triangle. However, this risk is reduced by the fact that Triangle has a diversified portfolio.
While another recession is a downside risk to consider, this does not appear likely at this time. With the economy showing signs of recovery, Triangle appears positioned to continue with earnings and dividend growth. The history of rising dividends, a high yield, portfolio diversification and a pullback in the shares, make this stock worth buying now.
Here are some key points for TCAP:
- Current share price: $27.16
- The 52 week range is $19.07 to $30.70
- Earnings estimates for 2013: $2.31 per share
- Earnings estimates for 2014: $2.46 per share
- Annual dividend: $2.16 per share which yields about 8%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.