PennantPark Investment Corporation (NASDAQ:PNNT) is a New York-based business development company, or "BDC," that is focused on finance. As a BDC, it seeks to provide shareholders with high levels of dividend income. This company generates earnings through the debt and equity investments it makes in a wide range of industries. It invests primarily in middle-market private companies by making senior secured loans, providing mezzanine debt and also through equity investments. These investments, which typically range between $10 to $50 million per transaction, generate income through interest payments as well as capital gains on the equity side.
This company makes investments in a number of industries including healthcare, transportation, energy, publishing, education, financial services, hotels, insurance, and many others. It has a portfolio that is diversified by industry, as well as geographical diversification. It has investments in companies like Magnum Hunter Resources (MHR), Prepaid Legal Services, Inc., Jacuzzi Brands, Corp., Penton Media, Kadmon Pharmaceuticals, and many more. Here are 3 reasons to buy this stock, especially on pullbacks:
1) PennantPark Capital recently reported solid financial results. For the quarter ended on June 30, 2012, it announced that net investment income totaled $15.6 million, or 28 cents per share. The average yield on debt investments was 13.3%, and the portfolio consisted of 51 companies with an average investment size of $18.2 million. The portfolio breakdown was 31% in senior secured loans, 16% in second lien secured debt, 43% in subordinated debt and 10% in preferred and equity investments.
2) This company has a history of raising the dividend, and the payout has doubled in about 5 years. For example, in 2007, the quarterly dividend was 14 cents per share, but thanks to regular increases, it is now 28 cents per quarter. Rising dividends can lead to a higher share price in the future.
3) Consider the yield in comparison to what other stocks are providing, and it is easy to see why buying this stock makes sense. For example, popular dividend stocks like Johnson & Johnson (NYSE:JNJ) offer a yield of 3.6%, and Chevron (NYSE:CVX) yields 3.2%. This company yields about 3 times as much, and over time that can really add up. It might take a stock like Johnson & Johnson or Chevron about 3 years to yield as much as PennantPark could pay out in a single year. Only select sectors like mortgage real estate investment stocks such as Annaly Capital (NYSE:NLY) with a yield of 12.7%, can top this stock. Look forward 5 years to see how a yield of about 10% can lead to total returns of 50%, and compare that to returns of 10 to 15% over 5 years, if you invest in a stock that only yields 2 or 3%. That is why it makes sense to put some high-yielding stocks in an income portfolio.
Here are some key points for PNNT:
Current share price: $10.89
The 52 week range is $12.76 to $17.42
Earnings estimates for 2012: $1.09 per share
Earnings estimates for 2013: $1.18 per share
Annual dividend: $1.12 per share which yields over 10%
Data is sourced from Yahoo Finance. 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
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.