- TCPC is likely under-priced for the reasons discussed in this article, trading under book value, RSI of 38, and offering a well-supported 10% dividend yield.
- The recent combination with BlackRock will create one of the strongest credit platforms in the sector with improved scale, relationships and analytics while retaining the current higher quality management team.
- TCPC is well-positioned for rising interest rates and has already experienced higher portfolio yields and improved net interest margin driving higher dividend coverage in the coming quarters.
- Earlier this year, there were insider purchases and if the stock continues lower, there will likely be additional accretive share repurchases.
- I recently purchased additional shares of TCPC at a price of $14.22 before the March 2018 ex-dividend date and have already earned $0.72 per share in dividends (including $0.36 paid tomorrow).
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Current BDC Dividend Yields
The average yield for business development companies (“BDCs”) is currently 10.1% which is near its average over the last six years as shown below. However, there are currently a handful of higher quality BDCs that typically have lower yields due to safer portfolios that are more likely to outperform during an economic slowdown, stable to growing book values, excellent dividend coverage and management that is willing to do the right thing including shareholder-friendly fee agreements.
For the reasons discussed in this article, TCP Capital (TCPC) is clearly a higher quality BDC that deserves to trade above book value with a yield that is usually much lower than the average. However, TCPC’s yield is now 10% which is near the average BDC and its historical highs implying that the stock is relatively under-priced.
I recently purchased additional shares of TCPC at a price of $14.22 before the March 2018 ex-dividend date as shown below and have already earned $0.72 per share in dividends (including $0.36 paid tomorrow). The Relative Strength Index or RSI is an indicator that I use after selecting a BDC that I would like to purchase, but waiting for a good entry point. Currently, TCPC has an RSI of 38 as shown below and in my BDC Google Sheets indicating that the stock is becoming ‘oversold’ or ‘undervalued’ as discussed below. However, it should be noted that there are currently quite a few BDCs with RSI’s below 40.
This is the definition of RSI from Investopedia:
“Traditional interpretation and usage of the RSI is that RSI values of 70 or above indicate that a security is becoming overbought or overvalued, and therefore may be primed for a trend reversal or corrective pullback in price. On the other side of RSI values, an RSI reading of 30 or below is commonly interpreted as indicating an oversold or undervalued condition that may signal a trend change or corrective price reversal to the upside.”