American Capital: Day's Dividend Play

01/10/2003 12:00 am EST

Focus:

Adrian Day

Chairman and CEO, Adrian Day Asset Management

Adrian Day is best known as a worldwide authority on hard assets and natural resources.  Through his GlobalAnalyst.com the advisor focuses on such global markets as energy and natural gas, currencies, and precious metals. He is also a fan of dividends, and turns to American Capital, a high-yielding out-of-favor lending firm, as his top pick for 2003.

"American Capital (ACAS NASDAQ) lends money to middle-market companies. It receives high rates of interest on the loans, often backed by collateral, plus equity, or warrants. As a Registered Investment Company, ACAS must pay out virtually all of its net income in the form of dividends. These dividends have shown steady growth since the company went public in 1997. This year, the company will have paid $2.57 in dividends, up from $2.30 last year (and a five-year growth of 66%). At today's price, that equates to a yield of almost 12%.

"The stock has come under attack recently by short-sellers who question the accounting methodology and valuations placed on the companies it owns. (The stock peaked at over $32 in April.) I think these charges are misplaced. As American Capital's CEO Malon Wilkus says, 'You can't restate a dividend.' Take advantage of this stock price decline to lock in a spectacular and growing dividend yield."

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