HTGC - Hercules Capital: 2 Possible Outcomes (Rating Downgrade)

2024-07-08 08:42:44 ET

Summary

• Hercules Capital (HTGC) operates as a business development company that maintains a focus on life science and tech based companies.
• HTGC's high dividend yield of 7.5% and consistent dividend growth make it attractive for income investors.
• HTGC trades at a premium to NAV of over 82%, which is significantly above the 45% premium to NAV average.
• Interest rate cuts can have two possible outcomes that are dependent on one another. Therefore, I am remaining on the sidelines to observe how things play out.
• The distribution is well covered by the fund's net investment income.

Overview

I previously covered Hercules Capital ( HTGC ) back in March with my article titled: ' Trades At A Premium For A Reason '. I wanted to now update my outlook because this premium has grown to an absurd level! For some context, Hercules Capital operates as a business development company that focuses on making debt investments to venture backed companies within the technology space. Since the time of my last coverage, HTGC has provided a total return greater than 17% compared against the S&P 500's return of approximately 6%. Even on a YTD basis we can see that HTGC has absolutely crushed it in performance and returned nearly 34% including distributions.

The high yielding distribution is one of the most appealing parts of HTGC. The dividend yield currently sits at 7.5%. The recent dividend growth that it has experienced makes it an attractive candidate for any income investor's portfolio as it packs a large enough punch to provide a sizeable upfront dividend income stream but also has the ability to quickly compound this stream of income through increases and reinvestment....

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