The low interest rate policy as set by the Federal Reserve has led many investors into buying dividend stocks. Since traditional money market and savings accounts often provide meager returns, investors have sought income from dividend stocks and that has caused share prices to rise and yields to fall. Many popular stocks now yield 3% to 4%. For example, Exxon Mobil Corporation (XOM) trades for about 10 times earnings and is now yielding just 2.6%. Johnson & Johnson (JNJ) yields 3.6%, and it trades for about 14 times earnings. There is even talk that Verizon Communications (VZ) has become part of a dividend stock bubble, as it now trades for about 17 times earnings and yields around 4.7%. This yield is still very good compared to a money market account, but it is hard to get excited about it, especially after considering the effects of taxes and inflation.
It could be time for investors to look at stocks of smaller companies that are not as well known if they want to get much higher yields. It appears that investors have already "picked-over" the widely-held dividend stocks, but there is still opportunity in lesser-known names for investors willing to take on what might be more risk, as well as more potential reward. Here is one stock that fits this profile and could be ideal for income investors:
Triangle Capital Corporation (TCAP) is set up as a business development company that is focused on financing for middle market companies. It typically invests amounts ranging from $5-to-$25 million under a range of financial transactions including: leveraged buyouts, management buyouts, recapitalizations, and acquisitions, just to name a few. These investments can include subordinated debt with warrants, loans, equity, etc.
Triangle management lowers risks by focusing on investments in lower middle market companies, that have strong management teams, a solid position in the market, and a history of generating revenues and positive cash flow. Here are three reasons to consider buying the stock:
1) Triangle invests in a wide range of companies and industries. The portfolio includes companies like Axxiom Manufacturing, which provides air blast equipment, Botanical Laboratories, which manufactures and markets vitamins, Carolina Beverage Group, Eckler's, which markets parts for classic cars, Hallmark Lighting, and many others. A full list of companies can be seen here. This diversified portfolio reduces risks for investors.
2) Analysts at Zacks Investment Research recently upgraded Triangle shares with a buy rating. When analysts back a stock, it can lead to increased exposure with investors, and even a higher share price.
3) This company has a history of raising its dividend. For example, in early 2007, the dividend was 15 cents per quarter, but it has been rising almost every year. Triangle just announced it would raise the dividend again from 50 cents, to 52 cents per quarter. Raising dividends can boost investor's interest and the share price.
Triangle shares have been in an uptrend, and recently traded for about $25.50. As with most stocks, it makes sense to buy on pullbacks.
Here are some key points for TCAP:
- Current share price: $24.17
- The 52 week range is $13.62 to $25.64
- Earnings estimates for 2012: $2.11 per share
- Earnings estimates for 2013: $2.22 per share
- Annual dividend: $2.08 per share, which yields about 9%
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.