15.7%-Yielding Trinity Capital Stock Rebounds After Fallout From Silicon Valley Bank Collapse
TRIN Stock Recently Jumped Approximately 10%
The recent share-price performance of Trinity Capital Inc (NASDAQ:TRIN) is a great example of bad things happening to an excellent stock—and a great example of a window of opportunity only being open for so long.
From the start of December 2022 through the opening days of March, Trinity Capital stock rallied by about 35%.
TRIN stock’s impressive momentum was crippled, though, after Silicon Valley Bank—also known as SVB Financial Group (NYSE:SIVB)—announced that it was forced to sell securities at a loss in order to manage lower deposit levels and higher interest rates.
The sales only affected customers who had money deposited in Silicon Valley Bank, but knee-jerk investors, afraid that the bank’s underlying weakness would spill over to the rest of the banking industry, sent shares of many financial firms, including Trinity Capital Inc, cratering. Since the start of March, the SPDR S&P Regional Banking ETF (NYSEARCA:KRE) has lost approximately 30% of its value.
During the initial days of the financial stock sell-off related to the Silicon Valley Bank crisis, Trinity Capital stock tumbled by roughly 20%. While the sell-off of TRIN stock was expected, since investors tend to group stocks from the same business sector together, it presented traders with a near-term opportunity to take advantage of the market turmoil.
At the time, I said the market volatility made Trinity Capital stock a “no-brainer.”
In addition to having a rock-solid balance sheet, the company had reported “a year of exceptional growth.” In 2022, its investment income increased by 77.0% year-over-year and its net investment income climbed by 83.6% year-over-year. (Source: “Trinity Capital Inc. Reports Fourth Quarter and Full Year 2022 Financial Results,” Trinity Capital Inc, March 2, 2023.)
Steve Brown, Trinity Capital Inc’s chairman and CEO, commented, “Our operating performance generated a record $975.5 million in new commitments and fundings of $631.2 million, leading to record total investment income of $145.5 million and net investment income of $71.6 million [or $2.26 per share].” (Source: Ibid.)
On top of that, Trinity Capital doesn’t hold any deposits or securities, nor does it maintain any accounts or credit facilities with Silicon Valley Bank. Neither do its clients.
In early March, analysts at B. Riley Financial lifted their price target for TRIN stock from $13.00 to $14.00 per share after Trinity Capital Inc reported better-than-expected fourth-quarter earnings. Later, just days before the Silicon Valley Bank mayhem, analysts at UBS Group AG (NYSE:UBS) adjusted their own price target for Trinity Capital stock from $13.00 to $16.00 per share. The two analyst upgrades pointed to potential upside in the range of 14.6% to 41.0%.
Not surprisingly, it didn’t take long for TRIN stock’s price to recoup its losses associated with the Silicon Valley Bank news. By March 17, Trinity Capital was trading back to where it was before the chaos. From its low point on March 13 to the beginning of April 3, the stock rebounded by approximately 10%.
Chart courtesy of StockCharts.com
Trinity Capital stock was already an excellent stock before the Silicon Valley Bank turmoil, and it remains an excellent stock. This helps explain why it rebounded so quickly.
TRIN stock’s recent performance illustrates why, in Warren Buffett’s words, investors should “be fearful when others are greedy and greedy when others are fearful.” Or, as Baron Rothschild suggested, investors should “buy when there’s blood in the streets.” (Source: “Buy When There’s Blood In The Streets,” Forbes, February 23, 2009.)
About Trinity Capital Inc
Trinity Capital is a business development company (BDC) that provides term loans and equipment financing to growth-stage companies. A growth-stage company is defined as having active equity sponsors, earning annual revenues of up to $100.0 million, and being past its risky early-development stage. (Source: “Fourth Quarter 2022 Investor Presentation,” Trinity Capital Inc, last accessed April 3, 2023.)
Trinity Capital has a successful track record of serving a multibillion-dollar, under-served, niche market. Since its inception in January 2008, the company has made 284 investments and 159 exits.
As of December 31, 2022, Trinity Capital Inc’s investment portfolio had an aggregate fair value of about $1.1 billion. The portfolio comprised approximately $802.9 million worth of secured loans, $246.0 million worth of equipment financings, and $45.6 million worth of equity and warrants across 116 portfolio companies.
Trinity Capital’s partner portfolio consists of companies operating in sectors including chemicals and fuels; clean technology; commercial services; consumer and retail; energy and efficiency; health care; Internet of Things; semiconductor and hardware; and software. (Source: “Meet Our Partners,” Trinity Capital Inc, last accessed April 3, 2023.)
The company’s current partner portfolio includes Axiom Space, Inc., GrubMarket, Impossible Foods Inc., and Nexus Systems Group. Two companies that Trinity Capital was an early investor in are Lucid Group Inc (NASDAQ:LCID) and Matterport Inc (NASDAQ:MTTR).
Trinity Capital Stock Pays Regular & Special Dividends
Thanks to Trinity Capital’s outstanding financial performance, it has been able to declare dividend increases for nine consecutive quarters. (Source: “Distributions,” Trinity Capital Inc, last accessed April 3, 2023.)
In full-year 2022, the company announced gross dividends of $2.33 per share. In December 2022, it declared a total dividend per share of $0.61 (with a payment date of January 13, 2023). The $0.61 consisted of a regular dividend of $0.46 and a supplemental dividend of $0.15. The company’s net investment income covered the $0.46 regular dividend by 135%.
On March 14, 2023, the company announced it was increasing its regular cash dividend to $0.47 per share, for a current yield of 15.7%. (Source: “Trinity Capital Inc. Declares Cash Dividend Increase to $0.47 Per Share and Provides Business Update,” Trinity Capital Inc, March 15, 2023.)
Management said their objective is to annually distribute four quarterly dividends that add up to approximately 90% to 100% of Trinity Capital’s taxable income—in order for the company to qualify for tax treatment as a regulated investment company. Furthermore, during any particular year, Trinity Capital Inc may pay supplemental dividends, meaning it distributes almost all of its annual taxable income in the year it was earned (sometimes making “spillover” payments in the next year). The company ended 2022 with an earnings spillover of $1.73 per share.
Brown commented, “In light of the recent industry events surrounding Silicon Valley Bank (‘SVB’) and Signature Bank (‘Signature’), our first priority is continuing to support our portfolio companies, and maintaining capital reserves to achieve that goal is paramount in this unprecedented market. Based on our preliminary review, we are not aware of any portfolio companies experiencing significant financial stress as a result of recent industry events.” (Source: Ibid.)
He continued, “At the end of 2022 we had undistributed earnings of approximately $60.4 million, or $1.73 per share. We will continue to evaluate the distributions required in the following quarters of 2023, including any supplemental dividend distributions we believe would be necessary to maintain our tax status as a regulated investment company.”
The Lowdown on Trinity Capital Inc
Shares of Trinity Capital were already a great opportunity before the Silicon Valley Bank chaos, and they continue to be a great opportunity.
During the financial crisis related to Silicon Valley Bank, TRIN stock tumbled by more than 20%, which put it in a more attractive trading range. Investors who recognized Trinity Capital stock’s potential could have taken advantage of the sell-off and realized a short-term return of about 10%.
As Trinity Capital’s CEO said, “Trinity is operating on all cylinders. We have a healthy portfolio, solid balance sheet and ample liquidity…” (Source: Trinity Capital Inc, March 2, 2023, op. cit.)
Wall Street analysts and the company’s management team
both have a robust outlook for TRIN stock. With more companies in need of less-dilutive capital to drive growth, Trinity Capital believes it’s well positioned to take advantage of the current market volatility and benefit from an increased deal flow.
This bodes well for Trinity Capital Inc’s share price; its growing, ultra-high-yield regular dividends; and its special dividends.