TriplePoint Venture Growth BDC Corp: Earn a 10.2% Yield From Tech?
A High-Yield Financial Stock to Think About
There’s little doubt that technology has been one of the hottest sectors in the market. And yield-seeking income investors want a piece of the action, too.
But there are two problems.
First, many tech stocks don’t pay dividends. And those that do, don’t pay much. So if it’s income you’re after, most tech names will leave you quite disappointed.
Second, there’s a risk of buying at the top. At the time of this writing, many tech stocks are experiencing a pullback, but they’re still up big-time compared to the pre-pandemic level. To give you an idea, the Nasdaq Composite is currently 45% higher than it was at the beginning of 2020. If sentiment does turn bearish, the next retracement could be substantial.
Yet one company seems to address both issues: TriplePoint Venture Growth BDC Corp (NYSE:TPVG).
You can think of TriplePoint as a venture capitalist with a focus on income generation. It provides customized debt financing with warrants and direct equity investments to venture-growth stage companies in technology and other high-growth industries backed by a select group of venture capital firms.
As of March 31, TriplePoint’s portfolio consisted of $574.1 million of debt investments, $29.8 million of warrants, and $29.8 million of equity investments. (Source: “Investor Presentation: Quarter Ended March 31, 2021,” TriplePoint Venture Growth BDC Corp, May 5, 2021.)
The lending business is quite lucrative. TriplePoint’s highly customized, senior-secured growth capital loans have a targeted return of 10% to 18% from interest and fees. The loans may also provide additional upside through equity kickers in the form of warrants. In the first quarter of 2021, the weighted average annualized portfolio yield on the company’s total debt investments was 13.3%.
And because TriplePoint Venture Growth BDC Corp is structured as a business development company (BDC), it’s required by law to return at least 90% of its profits to investors through dividends. Combined with a lucrative lending business, TPVG stock is now one of the highest-yielding stocks in today’s market.
With a quarterly dividend rate of $0.36 per share and a share price of $14.17, TriplePoint Venture Growth stock offers an annual yield of 10.2%.
In other words, TPVG stock is a high-yield dividend stock. So the first issue has been addressed.
Now, what about the problem of buying at the top?
Well, TriplePoint Venture Growth stock has enjoyed a nice rally since the market bottomed in March 2020. But it’s not expensive compared to earlier on. In fact, the shares are trading around the same level they were at the beginning of 2020.
Of course, the biggest issue with high-yield stocks is dividend safety—or rather the lack of it. For instance, BDCs have always been known as the higher-yielding names in the market, but in just the past year, quite a few of them cut their dividends due to impacts from the COVID-19 pandemic.
The good news is, TPVG stock didn’t reduce its payout: the company was paying quarterly dividends of $0.36 per share before the pandemic and it continues to pay the same amount today. It even rewarded investors with a $0.10-per-share special dividend in January. (Source: “Stock Information,” TriplePoint Venture Growth BDC Corp, last accessed May 18, 2021.)
As for dividend coverage, the company earned net investment income of $1.57 per share in 2020. Considering it paid four regular quarterly dividends totaling $1.44 per share for the year, the payout was covered. (Source: “TriplePoint Venture Growth BDC Corp. Announces Fourth Quarter and Fiscal Year 2020 Financial Results,” TriplePoint Venture Growth BDC Corp, March 3, 2021.)
In the first quarter of 2021, TriplePoint’s net investment income came in at $0.29 per share, which was quite a bit lower than the $0.41 per share it earned in the year-ago period. The year-over-year decrease was mainly due to the impact of the total return provision under the income component of the company’s incentive fee structure during the first quarter of 2020, lower investment and other income, and higher operating expenses. (Source: “TriplePoint Venture Growth BDC Corp. Announces First Quarter 2021 Financial Results,” TriplePoint Venture Growth BDC Corp, May 5, 2021.)
And while $0.29 per share is below the quarterly dividend rate, the company’s chairman and chief executive officer, Jim Labe, said, “We remain in a strong position to generate NII or net investment income in excess of our distribution over the longterm. As we always have in fact, over the last four years and cumulatively, since our [initial public offering], we have over earned our distribution.” (Source: “TriplePoint Venture Growth’s (TPVG) CEO Jim Labe on Q1 2021 Results – Earnings Call Transcript,” Seeking Alpha, May 6, 2021.)
It helps that TriplePoint had spillover income of approximately $14.0 million, or $0.45 per share, at the end of March. This could be used to support additional distributions.
Bottom Line on TriplePoint Venture Growth BDC Corp
As is the case with any dividend stock, the payouts from TriplePoint Venture Growth BDC Corp are not carved in stone.
But given the company’s business model and current financials, it’s hard to deny that TPVG stock provides a unique way for income investors to get some exposure to the fast-growing tech world.