Hercules Technology Growth Capital, Inc. - HTGC is a traded specialty finance company providing debt and equity growth capital to technology and life science companies at all stages of development. The company primarily finances privately held companies backed by leading venture capital and private equity firms. Hercules invests in a broad range of ventures active in technology, cleantech, life science and lower middle market industries and offers a full suite of growth capital products up and down the capital structure.
What does that mean to you? Hercules is a Business Development Company which is a form of publicly traded private equity in the United States created by Congress in 1980 as amendments to the Investment Company Act of 1940. Publicly traded private equity firms may elect regulation as BDCs.
What does Hercules do? They invest in High Growth Venture Capital backed pre-IPO companies. They have unique advantages because they are usually the only lender to these companies and their loans contain warrants of potential upside return. They also stay away from real estate loan exposure (no REIT issues here) and no exposure to any consumer credit.
So why buy HTGC? Currently the dividend is 88 cents a year for Hercules, which gives the stock a solid greater than 8% dividend. Also by rule, a BDC has to pay 90% of their profits out as dividends which brings me to earnings.
Its true that Hercules earnings were down from 2010, $1.26 compared to a projected $0.90 for 2011. However, they have held to that projection, with a 3 cent positive earnings surprise for the second quarter and a 2 cent negative surprise in the 3rd quarter. Projected earnings for Hercules is $1.10 for 2012. Using the 90% payout base, it looks like Hercules will increase their dividend by 13% this year to pay a projected 99 cents a share. This now makes the stock an even more attractive buy with a yield that now approaches 10%.
Insider training has showed a significantly greater amount of buys than sells, which tells me that the leaders of the organization believe in their company and must believe there is money to be made in the future with their stock.
With a current PE of just over 6, analyst upgrade just a couple weeks ago, increasing earnings and no problems raising revenue, Hercules is a stock that you should definitely consider if you are a buy and hold investor for income.
Disclosure: I am long HTGC.