As listeners to my show know, I love big dividends. Doesn't everyone? What is really exciting about the company Horizon Technology Finance Corp. (HRZN) is that it is paying out dividends of a little over 10%, which almost sounds too good to be true in this economy. Additionally, it is providing the necessary capital to many entrepreneurial growth companies. Due to U.S. government regulations, there is a void in small business lending that Horizon Technology Finance Corp. is filling with its capital. This allows HRZN to distribute substantially higher dividends than most other companies. As a Business Development Corporation (BDC) the company are required to distribute ninety percent of their earnings to take advantage of the tax incentive. That savings on taxes will go directly to your pocket!
George Jarkesy: I have Clay Mahaffey, the Chief Analyst of the National Eagles and Angels Association joining us.
Now if you would like get Clay Mahaffey's research, I encourage you to go to the website, eagleandangel.com.
Clay, welcome to The George Jarkesy Show. I'm seeing callers line up on the phones wanting to know what Clay's pick of the day is, so why don't you share it with our listeners.
Clay Mahaffey: Today I would like to talk about a very interesting company called Horizon Technology Finance Corp. It trades on the NASDAQ under the symbol HRZN; and has been trading around $16.50.
I like this company because it pays dividend of 10.7% and it has a modest amount of growth. This is a specialty finance company which makes secured short term loans to venture backed early stage development companies. This is a very simple business model. The company borrows money at about 7% and lends it out at 14% for a three year term. The company is a relatively young business which started only a couple years ago and has invested 350 million dollars in total. Many of those loans have been paid back already. The company has more than sixty portfolio companies, so it has some degree of diversification and a focused strategy. The company only invest in companies that have received venture capital financing or a public company that has received some sort of institutional support of fund raising events. The sectors the company focus on are life sciences, technology, healthcare information, and clean tech. the company are focused, have a backlog, and a unique business model.
One thing to be aware is the company do have an investment advisor structure like a hedge fund. The advisor gets 2% management fee and then if he exceeds a hurdle rate he gets 20% of the profit over that. But, the company has been performing very well. The company has been in operation for more than a year in a half, so it is an early company, but I think it has a good strategy. 10.7% dividend yields are hard to find these days. The company is organized as a business development corporation, so that the company pays no corporate taxes when the company distributes annually the majority of its dividends to shareholders.
George Jarkesy: That's great, the company is paying out a 10.7% dividend and the company is able to do that because the company is a business development corporation which has to put out 90% of its earnings to keep that status. It sounds like a great business, and with interest rates low and small businesses having a hard time finding capital, there should be a big gap between its borrowing and lending rate. If you're one of the lucky companies to even get a loan from a bank it might not be on terms that are advantageous to your business.