Join        Login             Stock Quote

KCAP Financial, Inc.'s (KCAP) 10.8% Dividend Worth Considering

 February 08, 2013 09:56 AM

(By Rich Bieglmeier) On Tuesday, February 5, 2013, KCAP Financial, Inc. (KCAP) completed a secondary offering for four million shares at $9.75 or roughly $40 million. It wasn't the only active day for the financial services company. Overall, KCAP finished our weekly accumulation screen as the number five most added as a percent of market-cap.

Kohlberg Capital Corporation (KCAP) is a private equity and venture capital firm specializing in mid-market, buyouts, and mezzanine investments. It focuses on mature and middle market companies. The firm structures its investments through senior debt, second lien debt, secured and unsecured subordinated debt, mezzanine debt, and equity. It invests in all sectors except cyclical industries. The firm invests equity in both minority and control transactions alongside other equity investors.

[Related -Dividend Roundup: PFE, RCII, AHT, NTE, MVC, KCAP]

KCAP's 10.80% current dividend yield is one of the most eye-catching benefits for shareholders in our view. The Company is treated as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986 as amended (the "Code"). To qualify as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements and distribute at least 90% of our net ordinary income and realized short-term capital gains in excess of realized net long-term capital losses, if any; which means if they have a profit, 90 cents on the dollar must be paid back to shareholders.

[Related -This Dividend Has More Than Doubled In The Last 5 Years And It's Going Up Again]

The company has paid a quarterly dividend since March 15, 2007 ranging from as little as 17 cents a share to as much as 41 cents. Obviously, the company suffered during the financial crisis; however, KCAP's dividend didn't miss a quarter.

Things are fundamentally better today than during the subprime crisis. Research Analyst, Jasper Burch told Wall Street Transcript, "in an environment of lower risk, defaults are near historic lows under 2.5% for leveraged-loan defaults. The BDCs (Business Development Companies) are probably even better than that in their underlying portfolios, and you have a very strong pricing trend."

Earnings projections are also trending in the right direction. Wall Street sees $1.02 eps for 2013, up 17.24% from 2012's $0.87 per share. Meanwhile, KCAP trades at 9.85 times 2013's earnings' forecast, suggesting some price appreciation is possible for the stock price.

Relative to its peers, KCAP is fairly valued; although, Kohlberg Capital quarterly revenue growth outpaces peers. Against KCAP's history, it is trading near its five-year high on a price-to-book (P/B) value, at 1.33x book compared to the five-year average of 0.6934x book. In this case, P//B is probably one of if not the most important common metrics for BDCs.

Overall, dividend seeking investors might find KCAP Financial, Inc. (KCAP) dividend yield more than attractive. If Wall Street analysts are correct in their forecasts for the year ahead, there is a good chance for a payout increase in the next 12-18 months. The recent offering should also put an initial floor of support for shares at $9.75ish. After that, more support should emerge in the $9 range.

iOnTheMarket Premium


Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageSavings Glut and Financial Imbalances

Martin Wolf in today's Financial Times discusses the reasons for low interest rates and suggests some read on...

article imageA Dividend Aristocrat Is Now On Sale

The bear market investors have been dreading is already here for many individual stocks. While the S&P 500 read on...

article imageTwo Picks to Play Defense in a Slowing Economy

Is the economy slowing? Last Thursday the Institute for Supply Management (ISM) reported that its read on...

article imageUS Jobless Claims Fall, Moving Closer To Multi-Decade Low… Again

US jobless claims continue to cast a positive glow on the outlook for the labor market. Today’s weekly read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.