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Shares of Hercules Technology Growth Capital (NYSE:HTGC) have continued to rebound since their sharp-sell-off last summer. After reviewing Q4 results, we see further total returns ahead. The 8.4% indicated yield on HTGC remains an obviously important metric for keeping this stock rated Buy on our recommended list. So is the fact that insiders remain persistently bullish.

Hercules Technology Growth Capital is a specialty finance firm supplying financing to private-equity firms operating mainly in the industries of life sciences, technology, and clean energy. As such, HTGC is akin to a publicly traded private equity firm itself.

The company's investments are mostly in the form of high-yield debt, though the company also picks up warrants and options to bring an equity-based upside component to the mix as well. For the most part, HTGC isn't a capital appreciation story since Hercules needs to pay out at least 90% of its earnings each quarter in the form of dividends as per its bylaws.

HTGC pre-released several key Q4 metrics back in January, and the firm has now finalized those results. As relayed in January, Hercules saw its level of commitments rise around 20%, to $630 million in the 2011. HTGC's total asset base is now up 38% on a full-year basis to $653 million. Thanks to recent capital injections, that figure should rise by a solid amount again in 2012.

Then again, the asset base will be determined by liquidity events. Roughly seven of Hercules' 109 holdings have filed to go public, and a 307,500 share position in Facebook clearly stands as the major liquidity event for upcoming results. HTGC picked up stock valued at an average of $31.08 per share, and present Facebook valuations imply tidy upside for this relatively modest $10 million position. HTGC also holds warrants in nine other companies that have filed an S-1.

By a variety of metrics, HTGC appears to have grown at a nice clip in 2011. But so has the share count. So the distributable net income per share rose just a penny in the fourth quarter of 2011, to $0.27. That brings the total distribution for 2011 to $1. To put that in perspective, the payout peaked at $1.32 a share in 2008, and slumped to a five-year low of $0.80 in 2010.

The company's debt investments help explain why this company can afford a lofty payout. HTGC's debt investments are yielding roughly 14% net of fees, but the company's weighted average cost of capital is half as much. The portfolio is so broad and deep that the company appears to have minimal risk that any one position goes into default.

Industry exposure isn't too concentrated either. About 20% of the portfolio is in drug discovery and development. Another 18% is tied up in "internet and business services," with the remainder spread across clean energy, media, software and other niches. Still, we're glad we don't own this stock in a lousy economy. Default rates, which are quite low right now, would likely be well higher in a bad economy.

As noted earlier, HTGC's robust yield makes this position one of the less risky ways to garner an 8.4% income stream on our money. We'd conclude the same if HTGC's indicated yield were down to 7%, and believe other investors will eventual conclude the same. If so, it would give this position an added double-digit capital gain from here as investors bid up HTGC until its yield finally reaches that lower level.

Hercules' insiders continue to be bullish on their shares since the open-market buying and opting in activity we highlighted last May. Since then, nine executives and directors at Hercules have bought or opted into a net of nearly 130k shares of HTGC. ("Opting in" is our term for when insiders exercise options, and hold onto all or some of them instead of flipping them for an instant, risk-free profit.) Acquisitions have occurred as HTGC traded between $8.70 and $10.58 per share, and four of the buyers increased their subsequent holdings substantially with their purchases. The most recent insider buy occurred in early March, when director Allyn Woodward bought 22,500 shares of HTGC at it traded for $10.48. Mr. Woodward bumped his holdings by 14.9% with the trade.

For investors looking for a high yielding security with low-to-moderate risk, HTGC is a Buy.

Source: Herculean Yield Still Attracts Insiders