Kohlberg Capital (KCAP)recently caught my eye. Jeremy Kohlberb, formerly of KKR private equity fame, owns a 15% stake in the company, which is essentially a business development firm that invests in companies it finds attractive, similar to private equity's model. Per regulations governing KCAP, it must pay out 90% of its net income as dividends. Since inception, KCAP has increased its dividend quarterly.
Generally, a yield this high would be cause for concern (like American Capital Strategies-ACAS), but in the case of KCAP, the stock has been rallying, not falling. Here's a snapshot of KCAP rocketing 28% in the past month vs. a 3% gain for the S&P500.
What's the cause for celebration? Helping the cause are the increasing dividend announcements and the realization that the stock has emerged relatively unscathed from the same maladies suffered by the Financials and Banks due to their balance sheet disasters related to risky credit instruments.
Given a prior high of $20 per share, close to double where it's at today, in concert with a 15% yield, KCAP might be worth considering, especially in a high yield self-directed IRA.
Disclosure: No position in KCAP at the time of publishing.
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Zacks likes it as of 2008-06-05:
Kohlberg Capital Corporation (NASDAQ: KCAP) is a business development company that sports a Zacks #1 Rank and a P/E of 7.46. On top of that, KCAP enjoys a dividend yield of 13.83% and a P/B ratio of .85, which meets this screen's parameters of a dividend yield greater than 2% and a P/B ratio of less than 3. In the first quarter, the company reported earnings of 49 cents per share, which exceeded analysts' expectations of 43 cents per share.
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I know that KCAP prefers to avoid funding it's dividend through return of equity and has fully covered its dividend in 2008 with net investment income. However, what is the likelihood that they may begin to fund the dividend through return of capital and realized capital gains, thus distorting the true dividend yield?
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