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The words “Silicon Valley” and “high yield investments” rarely appear together.
Yet this week’s Dividend PRO recommendation, Palo Alto, Calif.-based Hercules Technology Growth Capital (HTGC), allows us to do just that.
HTGC is a private equity, venture capital and venture debt firm specializing in providing debt and equity to privately held venture capital and private equity-backed companies and select publicly traded companies. Since inception, Hercules has committed more than $2.7 billion to over 190 companies. HTGC’s current warrant portfolio also includes over 100 venture-backed companies in the technology, cleantech and life science market sectors, all representing huge potential upside for investors.
As a business development company (BDC), HTGC combines the best of big potential technology profits with a juicy yield of 8.4%. HTGC boasts this unique profile because like their REIT and MLP counterparts, BDCs are considered "pass through" investments, and are not taxed at the corporate level as long as they pay out to shareholders at least 90% of their taxable annual net income each year.
While BDCs like HTGC were hit hard in the Great Recession, they are bouncing back along with the rest of the U.S. economy. I’ve spoken to several of my contacts in Silicon Valley, including some CEOs of technology firms, and they tell me that the tech sector in Silicon Valley appears to be particularly hot.
That certainly seems to be the case with HTGC. It was able to cash out of no fewer than six of its investments in the past quarter. Four companies had successful initial public offerings (IPOs), one was acquired and another announced it will be acquired.
But the big news for this quarter is that one of HTGC’s investments is in Facebook, Inc., which itself has filed for a potential IPO at the end of May. HTGC’s investment in the biggest IPO in recent memory will certainly burnish its reputation as an increasingly important player in the Silicon Valley venture capital game.
No wonder insiders have been buying the stock aggressively since March, and that the investment firm Robert W Baird initiated coverage on HTGC with an "outperform" on April 11.
So buy Hercules Technology Growth Capital (HTGC) at market today, and place your stop at $10.25.
If you want to capture some more potential upside in this stock, I recommend the July $12.50 call options (HTGC120721C00012500).
Portfolio Update
Seadrill (SDRL) fell slightly this week, after soaring 5.84% the previous week. Bermuda-based Seadrill is now the largest offshore driller in the world as measured by market capitalization. Still trading below its 50-day moving average, SDRL remains a HOLD.
Hospitality Properties Trust (HPT) ended the week where it started. The regular quarterly common share distribution of $0.45 per common share ($1.80 per share per year will be paid to HPT’s common shareholders of record as of the close of business on April 26, 2012, and distributed on or about May 24, 2012. This high-performing Real Estate Investment Trust (REIT) remains a BUY.
Vanguard Natural Resources (VNR) jumped 2.56%. The company declared a cash distribution attributable to the Q1 of 59.25 cents per unit payable on May 15 to unit holders of record on May 8, 2012. This represents an approximate 3.9% distribution increase from the Q1of FY11 and a 0.9% distribution increase from the Q4. Back above its 50-day moving average, VNR is now a BUY.
Global X Super Dividend Exchange Traded Fund (SDIV) rose 1.38% this past week. According to new data from Global X, SDIV’s current distribution yield is almost 12.3%. Still trading under its 50-day moving average, it remains a HOLD.
Two Harbors Investment Corp. (TWO) was flat in its first week in the Dividend PRO portfolio. With insiders buying the stock like crazy over the past year and the stock trading above its 50-day moving day average, TWO remains a BUY.
P.S. Please join me for the Las Vegas Money Show, May 14-17, at Caesar’s Palace. To register, call 1-800/970-4355 and mention priority code 026655 or go to NicholasVardy.lasvegasmoneyshow.com. I also encourage you to sign up for my hedge fund seminar, Wednesday, May 16, 9 a.m. – 11 a.m. In addition, please click here to sign up for my private meeting at the MoneyShow for you and my other subscribers on Wednesday, May 16, 12:15 p.m.-1 p.m., in the Salemo Room.
