TICC Capital Corp. (TICC) is a business development company primarily engaged in providing capital to technology-related companies. TICC concentrates its investments in companies having annual revenues of less than $200 million and/or a market capitalization or enterprise value of less than $300 million.
The total fair value of the investment portfolio was approximately $308.8 million as of June 30, 2011. The portfolio consists of mainly senior secured debt with CLOs investments representing about 30% of assets. The portfolio had a weighted average yield on debt investments of approximately 12.9% (including GenuTec Business Solutions, Inc. which carries a zero interest rate through October 30, 2014). During the quarter ended June 30, 2011, approximately $30.6 million in new portfolio investments were made.
The stock is currently yielding over 10% which has generated a lot of excitement among contributors here. But this is a yield we recommend passing on for now, mainly because TICC hasn’t been able to lock up nearly as much long term capital as other BDCs which are yielding more. In the BDC space, favorable long-term financing is crucial for success and dividend stability.
Until only recently, TICC had no debt at all which is both good and bad. While it means they are much less likely to be impacted by a downturn in asset values that could result in a dividend cut, it does mean that they’re also somewhat limited going forward in dividend growth. That said, they did recently lock up $225 million at LIBOR plus 2.25% which is an excellent rate. However, now they have to effectively allocate that capital to earn the highest rate of return for its investors.
This is much easier said than done. This requires deep industry networks and professionals who can source deals at good interest rates in a competitive financing environment. BDC’s like Fifth Street Finance have demonstrated they can do this component well. We’re not saying TICC is a bad dividend stock, far from it. But it’s not the best BDC play right now.
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Getty Realty Corporation (GTY) is a REIT that primarily owns 950 auto repair, gas stations and convenience store properties. It leases its sites primarily to gas stations, of which about three-quarters are Getty stations. The stock has recently sold off from almost $25 pushing its dividend yield up to over 10%. This has gotten a lot of high-yield dividend chasers excited but a closer look at this stock leaves us a little wary.
Getty’s biggest tenant is Getty Petroleum Marketing Inc. which was recently owned by the Russian oil company OAO Lukoil. In February of this year, Lukoil sold Getty Petroleum Marketing to a much smaller outfit Cambridge Petroleum Holding Inc. The stock dropped on this news as investors worried about the creditworthiness of the new parent company of GTY’s largest tenant and, in fact, GTY announced earlier this month that they had not yet received rent from Getty Petroleum Marketing Inc:
(Getty) was informed today that based on Marketing’s distressed financial position, weakness in operating margins, and cash flow deficiencies, it was unlikely to be able to pay full rent for August.
Getty Petroleum Marketing was also recently negatively impacted from a $230 million judgment against it which could further impact its financial position going forward.
Either way, we think there are safer high yield stocks out there paying 10%.