This issue will look a little different. It will read more like the weekly updates I send to my premium Yield Shark readers. Along with a new stock pick every month, quarterly live calls with me, and a members only chat area, subscribers also get an update every Tuesday.
If you’re not familiar with earnings season, it’s when public companies release their earnings for the quarter that just ended. It’s also when markets tend to move in response to the massive amount of data being released.
Most companies also host a conference call in addition to a press release. This is your opportunity to hear the management team talk about the company. There’s usually a Q&A session at the end when analysts can ask questions. I like to join the call or read the transcript of every call for our open positions and many of my watch list companies.
Today, you’ll get a shortened peek at what a weekly update looks like for when you’re ready to subscribe to Yield Shark. I’m doing this because there are two updates I want to give you on companies we talked about during last month’s live event.
Still Bullish on BDCs
My favorite business development company (BDC) released its third-quarter earnings last week. Hercules Capital (HTGC) saw another strong quarter of record funding and operating performance.
Total investment income for the quarter was $138.1 million. That brought the year-to-date figure to a record $395.1 million, up 6.4% from the same 2024 period. Third-quarter net investment income of $88.6 million also pushed the year-to-date figure to a record $254.7 million, up 4.1% compared to last year.
Here are the numbers that got my attention.
Third-quarter originations (new investments) reached $846 million, hitting $2.87 billion for the first three quarters of the year. This puts HTGC on pace to exceed 2024’s record $3.12 billion. Unscheduled early repayments for the quarter were $263.3 million, down 1.9% from the previous quarter.
I regularly get asked, “Why BDCs, and why now?” That’s especially true with many analysts advising us to avoid private equity. I agree about private equity, but not for high-quality BDCs. Many investors have been avoiding BDCs because their net asset value (NAV) has been falling.
Obviously, we want the NAV to rise so our investment also rises over time. Many BDCs have struggled with a lack of new deal opportunities and higher early repayments. This is what happens in periods of uncertainty. Small- and medium-sized businesses shore up their balance sheets while they wait for interest rates to drop.
HTGC is set up to land record originations this year. This shows the strength of its two focus areas: life sciences and tech. It works hard to find new business partners and outpace early repayments, which have slowed quarter over quarter. Its NAV is currently $12.05, up 1.8% from the previous quarter.
Despite a declining interest rate environment, HTGC was able to achieve 122% coverage of its $0.40 quarterly base distribution. We should continue to see a supplemental payment as well. I remain long-term bullish on BDCs and enjoy watching HTGC maneuver through this challenging market while hitting new records.
An Un-Expected Acquisition
Along with BDCs, consumer staples are another integral part of a dividend-focused portfolio. One of my favorites is personal care products giant Kimberly-Clark (KMB). Shares are flat over the two years since our entry.
It doesn’t get much more boring than a company like Kimberly-Clark—toilet paper, paper towels, diapers, and feminine products. Most of us don’t want to live without them. It’s a great defensive holding that pays a steady and reliable dividend. But these aren’t products to really innovate for growth.
That changed Monday morning when KMB announced it would purchase Kenvue (KVUE) to create “a global health and wellness leader.” Shares of KMB opened down 12.5% from Friday’s close, while shares of KVUE jumped 17%.
I don’t think anyone saw this deal coming, but it just might make sense. Both companies have made it clear a transition was inevitable. The solution is apparently a company more like Procter & Gamble (PG) with greater penetration into all the “drugstore aisles.”
The two companies held a joint call on Monday. They focused on the massive synergies expected and how it would be a great deal for all involved. I am cautiously optimistic about the deal and want to see a more detailed plan for growth, but that probably is not fully fleshed out quite yet.
Expect to see shares of both companies trade all over the place until the deal closes in the second half of 2026. I recommend to continue to hold KMB. I don’t think the drop in its shares was warranted. However, I would wait for volatility to pass before adding to your position.
Thank you for your article and insight, Kelly. I had not previously considered HTGC. If my math is correct, it is selling at .48% premium, so close to par. I will watch for it to trade at a discount to NAV.
In your latest "Dividend Digest" article you misspelled the name Procter & Gamble. "Procter" is spelled with "er" at the end, not "or". Just an FYI.