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Buy this BDC for Rising Earnings and a 11% Dividend Yield

Rising earnings estimates on the back of strong second quarter results – including a 48.2% earnings surprise – have helped TICC Capital Corp (NASDAQ: TICC) achieve a Zacks #1 Rank (Strong Buy) on August 30.  Moreover, this non-diversified management investment company has delivered an average surprise of 28.2% over the past four quarters.

With a solid year-to-date return of 20% and a history of beating quarterly earnings estimates, this stock offers an attractive investment opportunity.

Better-than-expected second-quarter earnings and steady improvement in investment portfolio are the primary rank drivers for this stock.  Moreover, continued improvement in investment income will help improve its profitability in the upcoming quarters.

On August 20, TICC CAPITAL completed an underwritten public offering of 3,450,000 shares of its common stock at a public offering price of $9.65 per share for total estimated gross proceeds of $33.3 million.  This capital will serve as growth for investments in the coming quarters.

On July 30, TICC Capital reported second-quarter 2012 net investment income of 40 cents per share, outpacing the Zacks Consensus Estimate of 27 cents by 48.2% and the year-ago earnings of 29 cents by 37.9%.

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Total investment income of $20.5 million surged 83.8% from the year-ago quarter. Significantly higher (almost 87%) total investment income from non-affiliated/non-control investments was primarily responsible for the surge.

The fair value of TICC Capital’s total investment portfolio was $439.2 million as of June 30, 2012, up 12.2% from $391.5 million as of December 31, 2011. During the second quarter, the company provided approximately $62.1 million debt funding to new and existing portfolio companies.

TICC Capital’s Board of Directors has increased its dividend by 7.4% to $0.29 per share distribution for the third quarter this year, payable on September 28, 2012, to shareholders of record as of September 14, 2012.  TICC Capital had a very strong second quarter, as reflected by their having deployed approximately $62.1 million of capital, consistent with their investment strategy, as well as by their taxable income continuing to equal or exceed dividend distributions.

TICC Capital has a current dividend yield of 11.15%.  TICC Capital has increased its dividend 16% in the last year.

TICC Capital has a 12-month target price of $11.30.

TICC Capital Corp. is a business development company primarily engaged in providing capital to technology-related companies.  TICC concentrates its investments in companies having annual revenues of less than two hundred million dollar and/or a market capitalization or enterprise value of less than three hundred million dollar, with a focus on businesses.

2 Aggressive Investments in Business Development Companies

The BDC business model is to lend to small and midsized companies at high yield equivalent rates while also at times taking equity stakes in such companies.  BDCs can also take an active part in assessing the borrower’s prospects and modifying business practices if necessary with the goal of ensuring a favorable
return for shareholders and principals in the company.  The combination of making loans and taking equity stakes has the potential for relatively high, stable cash distributions with the additional benefit of capitalizing on the equity performance of the borrower.

Now, BDCs are offered as bundles in ETNs that come as a normal ETN (BDCS) and a 2X leveraged ETN (BDCL) for aggressive investors.

The ETRACS Linked to the Wells Fargo Business Development Company Index due April 26, 2041 (BDCS) is designed to track an investment in the Wells Fargo Business Development Company Index, and may pay a variable quarterly coupon linked to the cash distributions associated with the underlying BDC constituents, less investor fees.  BDCS is trading at $22.34 with a quarterly dividend yield of 9.78%.  Year to date, BDCS has a market return of 12.5% compared to 9.5% for the S&P 500.  Here are the top holdings:

ACAS     American Capital Ltd

ARCC     Ares Capital Corp

SUNS     Solar Senior Capital Ltd

AINV     Apollo Investment Corp

FSC         Fifth Street Finance Corp

TAXI       Medallion Financial Corp

BKCC     Blackrock Kelso Capital Corp

SLRC      Solar Capital Ltd

HTGC     Hercules Technology Growth Capital Inc

MCC      Medley Capital Corp

For the most aggressive investors, the ETRACS 2xLeveraged Long Wells Fargo Business Development Company Index (BDCL) is designed to track a leveraged investment in the Wells Fargo Business Development Company Index and pay a variable quarterly coupon linked to the leveraged cash distributions associated with the underlying Business Development Company (“BDC”) constituents, less financing costs and investor fees.  BDCL is trading at $20.65 with a dividend yield of 16%% based on its most recent quarterly distribution of $0.8197 in January 2012.  Year to date, BDCL has a market return of 24.81% compared to 9.5% for the S&P 500.  The portfolio is like BDCS except the ETF is leveraged 2 times.

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