I have several positions in Business Development Companies (BDCS) right now as they are attractive for a variety of reasons.
Advantages of BDCs:
- Pay high yields of 7-11 percent
- Are filling a liquidity void for small and medium sized firms as banks pull back on lending to these sectors
- Can raise money at attractive rates right now
One of my favorite BDCs is Hercules Technology Growth Capital (HTGC). It has been a winner since I bought it earlier in the year and based on recent events, I think it has further capital appreciation ahead of it along with its juicy yield.
Key recent events:
- Robert W Baird initiated coverage on HTGC with an "outperform" on April 11th. This follows an upgrade by Stifel Nicolaus to a "Buy" in February.
- A record number (6) of HTGC's portfolio companies achieve liquidity events in the first quarter. 4 had successful IPO's, one was acquired and another announced it will be acquired.
- The company was able to price $43mm in unsecured notes at an attractive yield of 7%.
Hercules Technology Growth Capital - "Hercules Technology Growth Capital, Inc. is a private equity, venture capital, and venture debt firm specializing in providing debt and equity to privately held venture capital and private equity backed companies and select publicly-traded companies". (Business Description from Yahoo Finance)
4 additional reasons I would still buy HTGC ahead of earnings (May 8th) at $11 a share:
- HTGC yields 8.4% and it raised its distribution by 5% on the last payout in March.
- Insiders made additional share purchases in March and have been net buyers over the last six months.
- Analysts still have over 20% revenue growth expectations for both FY2012 and FY2013.
- The stock is selling at under 10 times forward earnings and just 10% over book value.
Disclosure: I am long HTGC.
