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Hercules: Change-Up at Venture Capital Firm

05/08/2017 2:45 am EST


Tim Plaehn

Investment Research Analyst, Investors Alley

The share price Hercules Capital (HTGC) — one of our recommended holdings — has taken a sharp tumble on the news that the company wants to convert from internal to external management, observes Tim Plaehn, dividend expert and editor of The Dividend Hunter.

The company provides venture capital services. While there has been a lot of hand-wringing opinions on the financial websites, I have looked at the actual effects of the change if the plan does go through.

First, the proposed change will have basically no effect on HTGC's expenses, portfolio, and current business outlook. This is the same company as it was on Wednesday. The dividend is secure and growth prospects still look good.

Second, the change must be voted on by shareholders. I recommend voting against the change. If management wants to take themselves external, they should make the move a financial positive for the shares, not just keep things at the status quo.

Also note, it's interesting to see that HTGC is back to where it was in early November 2016. If you bought shares in the first 10 months of last year, you are still in a profit position.

At under $13, HTGC now yields 9.6%. That is a very attractive yield for one of the better BDC's available in the market. If you want to make a move on this stock, I would recommend buying more rather than selling into the decline.

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