The United States excels at creating new technologies, yet for dividend investors, the technology sector represents a rather barren landscape.
The likes of Apple (NASDAQ: AAPL), Intel (NASDAQ: INTC) and Microsoft (NASDAQ: MSFT) are prime examples of American companies that created new technologies — and the corporate empires those technologies have spawned.
Intel does pay an annual yield of 3.2%, but Microsoft only spins off a 2.6% yield. As for cash-rich Apple, well, the personal technology giant chooses to horde its cash, paying no dividend at all.
If only there was a way to enjoy the fruits of the technology market, and the high-yield that often eludes investments in the sector. Well, there is a way to accomplish this Herculean task: Hercules Technology Growth Capital (NASDAQ: HTGC), a specialty finance firm based in the heart of technology country, Palo Alto, Calif.
Hercules provides venture debt and equity to venture capital to public and private companies in the technology, clean technology, and life science industries. Hercules was founded in 2003, and consists of a team of 13 managing directors and principles with more than 274 years of venture capital and specialty technology investing experience.
The strong rebound in the tech sector over the past two years has been a big boon to HTGC’s financial performance. In its latest quarterly results, HTGC posted net income of $9.8 million, up 75% compared with the first quarter of 2010. Its distributable income climbed 73%, allowing the company to declare a quarterly dividend payment of 22 cents per share. At that rate, HTGC will pay out 88 cents per share. That equates to a current yield of 8.5%.
In the first quarter, HTGC originated $98 million in total commitments to new and existing clients with clean technology being a new wave of investment exposure. Total investment assets climbed by 15.9% year-over-year to approximately $445 million compared with $384.1 million as of March 31, 2010 and the company finished the first quarter of 2011 with more than $220 million in available liquidity.
At the end of the quarter, more than 93% of the company’s debt investments were in a senior secured first lien position and more than 88% of the debt investment portfolio was priced at floating rate interest rates with a LIBOR floor. In my view, after the recent bond rally, long-term rates will rise, and that will begin benefiting HTGC’s interest income.
Structured as a business development company, Hercules is required to pay out 90% of net income to shareholders — and that makes this company up to the task of delivering high technology sector yields to income-oriented investors.
Disclosure: Bryan Perry recommends HTGC in the Cash Machine portfolio.
