Improving Economy Makes BlackRock Kelso Capital A High-Yielding Buy

Mar. 4.12 | About: BlackRock Kelso (BKCC)

Business development companies are becoming a bigger part of my portfolio over the last few months. They provide great yields, are stepping in to fill the void created by reduced bank lending to mid-tier firms and should benefit significantly by an improving economy. I have investments in Hercules Technology Growth Capital (NASDAQ:HTGC) and TICC Capital Group (NASDAQ:TICC). Another BDC I am looking hard at is BlackRock Kelso Capital (NASDAQ:BKCC).

Business description from Yahoo Finance (see here):

BlackRock Kelso Capital Corporation is a private equity firm specializing in investments in middle market companies. The firm invests in all industries. It prefers to invest between $10 million and $50 million and can invest more or less in companies with EBITDA or operating cash flow between $10 million and $50 million. The firm invests in the form of senior and junior secured, unsecured, and subordinated debt securities and loans including cash flow, asset backed, and junior lien facilities and equity securities.

6 reasons BKCC is a solid bargain at under $10 a share:

  1. The stock yields a robust 10.8% and sells at just over book value.
  2. The company is showing consistent earnings growth. It earned $.99 a share in FY2011, and analysts expect it to earn $1.03 in FY2012 and $1.11 in FY2013.
  3. The stock is showing increasing technical strength and recently crossed over its 200 day moving average (see chart below, click to enlarge):

    Click to enlarge

  4. Insiders have been net buyers of the stock over the last year.
  5. The management company has a well-diversified portfolio with investments in 54 different companies and just received a new $158mm loan facility.
  6. The company is experiencing very solid revenue growth. Revenue for FY2011 came in at just over $131mm and analysts project over $148mm in revenues in FY2012 and $184mm in FY2013.

NOTE: Investors need to "opt out" to receive dividends in cash. Otherwise, the company will pay dividends in additional shares.

Disclosure: I am long HTGC, TICC and I may pick up BKCC in next 72 hours