When I examined Hercules Capital's dividend safety a year and a half ago, there were some serious issues. The company was paying out more cash in dividends than it was bringing in from running its business. Today, the situation has improved greatly. When we analyze a BDC's financials, the number we're most concerned with is net investment income, or NII. This is the money the company makes from investing its capital. (It's the equivalent of cash flow for a regular business that sells products and services.) As you can see in the chart below, Hercules' NII was stagnant for a few years. But now, that has changed, as NII has exploded higher and is forecast to rise again this year. However, just because NII is growing doesn't necessarily mean the company can afford its dividend. Will Hercules Capital's business be as strong as its namesake and allow it to continue paying the dividend? |
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