{"id":8279,"date":"2024-11-21T07:52:44","date_gmt":"2024-11-21T07:52:44","guid":{"rendered":"https:\/\/finderica.com\/is-its-10-yield-as-strong-as-it-looks\/"},"modified":"2024-11-21T07:52:44","modified_gmt":"2024-11-21T07:52:44","slug":"is-its-10-yield-as-strong-as-it-looks","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=8279","title":{"rendered":"Is Its 10% Yield as Strong as It Looks?"},"content":{"rendered":"<div>\n<p>Anytime I hear the name \u201cHercules,\u201d I immediately impersonate Eddie Murphy as Mama Klump saying <a href=\"https:\/\/www.youtube.com\/watch?v=WR1UiNdQnDw\" target=\"_blank\" rel=\"noopener noreferrer\" data-url=\"https:\/\/www.youtube.com\/watch?v=WR1UiNdQnDw\">\u201cHercules, Hercules!\u201d<\/a> in <em>The Nutty Professor<\/em>. It\u2019s an automatic response. My kids, appropriately, roll their eyes.<\/p>\n<p>Investors in <strong>Hercules Capital<\/strong> (NYSE: HTGC) aren\u2019t rolling their eyes these days, though \u2013 not while they\u2019re getting paid a 10% yield.<\/p>\n<p>Will they stay as proud of Hercules Capital as Mama Klump is of her boy?<\/p>\n<p>Hercules Capital is a business development company, or BDC, that lends money to emerging companies, including\u2026<\/p>\n<ul style=\"padding: 0; margin: 0px 0px 0px 40px;\">\n<li style=\"margin: 21px 0px 21px 0px;\"><strong>Compass Pathways<\/strong> (Nasdaq: CMPS), a biotech firm that is headquartered in London and focuses on therapies for mental health<\/li>\n<li style=\"margin: 0px 0px 21px 0px;\">HighRoads, a health benefits management company located in Burlington, Massachusetts<\/li>\n<li style=\"margin: 0px 0px 21px 0px;\">ZeroFox, a Baltimore-based cybersecurity provider.<\/li>\n<\/ul>\n<p>When I examined Hercules Capital\u2019s dividend safety a year and a half ago, there were some serious issues. The company was paying out more cash in dividends than it was bringing in from running its business.<\/p>\n<p>Today, the situation has improved greatly.<\/p>\n<p>When we analyze a BDC\u2019s financials, the number we\u2019re most concerned with is net investment income, or NII. This is the money the company makes from investing its capital. (It\u2019s the equivalent of cash flow for a regular business that sells products and services.)<\/p>\n<p>As you can see in the chart below, Hercules\u2019 NII was stagnant for a few years.<\/p>\n<p><a id=\"jump\"><\/a>But now, that has changed, as NII has exploded higher and is forecast to rise again this year.<\/p>\n<p><a style=\"text-decoration: none;\" href=\"https:\/\/dkwegfj7whlol.cloudfront.net\/oxford\/wr\/20241120_WR-chart-hercules.jpg\" data-rel=\"penci-gallery-image-content\" target=\"_blank\" rel=\"noopener\"><img decoding=\"async\" class=\"aligncenter size-full img-fluid img-responsive cc_pointer\" style=\"width: 550px; max-width: 100%; display: block; margin: 0 auto;\" src=\"https:\/\/dkwegfj7whlol.cloudfront.net\/oxford\/wr\/20241120_WR-chart-hercules.jpg\" alt=\"Chart: Hercules Is Getting Stronger and Stronger...\" width=\"550\" height=\"auto\"><\/a><\/p>\n<p>Last year, Hercules Capital brought in $304 million in NII and paid $274 million in dividends for a 90% payout ratio. This year, Wall Street forecasts $341 million in NII and $303 million in dividends, which would represent an 89% payout ratio.<\/p>\n<p>BDCs are required to pay out 90% or more of their net income in dividends in order to avoid paying corporate taxes, so I\u2019m OK with payout ratios of up to 100%. Keep in mind, NII is not the same as net income, but because of the requirement to pay out at least 90% of their net income, BDCs often have higher payout ratios than other companies.<\/p>\n<p>With Hercules Capital\u2019s payout ratio holding steady at around 90%, I\u2019m comfortable that it can afford its dividend.<\/p>\n<p>The company has increased its regular dividend (annualized) every year since 2021. It has also paid a special dividend every quarter since 2020, but the special dividend may vary. It was cut in half in the first quarter of 2023 and has remained at $0.08 per share since then.<\/p>\n<p>Based only on the regular quarterly dividend, which stands at $0.40 per share, the stock yields 8.5%. When you add the $0.08 per share special dividend, the yield climbs to 10.2%.<\/p>\n<p>On Hercules Capital\u2019s third quarter conference call, management said it is confident in the company\u2019s ability to cover the base dividend of $0.40. Additionally, CEO Scott Bluestein stated, \u201cTo the extent that we have excess spillover income, which we continue to have, it is our view and our belief as an organization that we have an obligation to return as much [of] that as we can to our shareholders.\u201d<\/p>\n<p>Overall, Hercules Capital\u2019s regular dividend is rock-solid. The special dividend is variable, so you have to consider that it could change at any time, but it doesn\u2019t look to be in danger at the moment.<\/p>\n<p style=\"text-align: center;\"><strong>Dividend Safety Rating for the Regular Dividend: A<\/strong><\/p>\n<p style=\"text-align: center;\"><strong>Dividend Safety Rating for the Total Dividend (Regular + Special): B<\/strong><\/p>\n<p><img decoding=\"async\" class=\"aligncenter size-full\" src=\"https:\/\/dkwegfj7whlol.cloudfront.net\/oxford\/wr\/grade-guide.jpg\" alt=\"Dividend Grade Guide\" width=\"300\" height=\"auto\"><\/p>\n<p>What stock\u2019s dividend safety would you like me to analyze next? Leave the ticker in the comments section.<\/p>\n<p>You can also take a look to see whether we\u2019ve written about your favorite stock recently. Just click on the word \u201cSearch\u201d at the top right part of the <em>Wealthy Retirement<\/em> homepage, type in the company name and hit \u201cEnter.\u201d<\/p>\n<p>Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.<\/p>\n<p><!-- AddThis Advanced Settings above via filter on the_content --><!-- AddThis Advanced Settings below via filter on the_content --><!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons above via filter on the_content --><!-- AddThis Share Buttons below via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content --><\/p><\/div>\n<p><script>\n  window.fbAsyncInit = function() {\n    FB.init({\n      appId      : '555402891275842',\n      xfbml      : true,\n      version    : 'v20.0'\n    });\n    FB.AppEvents.logPageView();\n  };\n  (function(d, s, id){\n     var js, fjs = d.getElementsByTagName(s)[0];\n     if (d.getElementById(id)) {return;}\n     js = d.createElement(s); js.id = id;\n     js.src = \"https:\/\/connect.facebook.net\/en_US\/sdk.js\";\n     fjs.parentNode.insertBefore(js, fjs);\n   }(document, 'script', 'facebook-jssdk'));\n<\/script><script>\n    (function(d, s, id) {\n      var js, fjs = d.getElementsByTagName(s)[0];\n      if (d.getElementById(id)) return;\n      js = d.createElement(s);\n      js.id = id;\n      js.src=\"https:\/\/connect.facebook.net\/en_US\/sdk.js#xfbml=1&version=v3.1&appId=555402891275842&autoLogAppEvents=1\";\n      fjs.parentNode.insertBefore(js, fjs);\n    }(document, 'script', 'facebook-jssdk'));\n  <\/script><br \/>\n<br \/><a href=\"https:\/\/wealthyretirement.com\/safety-net\/hercules-capital-htgc-is-its-10-percent-yield-as-strong-as-it-looks\/?source=app\" target=\"_blank\" rel=\"noopener\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Anytime I hear the name \u201cHercules,\u201d I immediately impersonate Eddie Murphy as Mama Klump saying \u201cHercules, Hercules!\u201d in The Nutty Professor. It\u2019s an automatic response. My kids, appropriately, roll their eyes. Investors in Hercules Capital (NYSE: HTGC) aren\u2019t rolling their eyes these days, though \u2013 not while they\u2019re getting paid a 10% yield. Will they<\/p>\n","protected":false},"author":2,"featured_media":8280,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[348],"tags":[2827,1006],"class_list":{"0":"post-8279","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-retirement","8":"tag-strong","9":"tag-yield"},"_links":{"self":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/8279","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=8279"}],"version-history":[{"count":0,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/8279\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/media\/8280"}],"wp:attachment":[{"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8279"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8279"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8279"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}