Fortunes are made and lost on any given day in the market when it comes to investing in the latest technologies.
Take Apple (AAPL). Perhaps you had the fine sense and superb timing to buy in and get out just at the right times. But more likely — along with countless mutual funds, pension funds and millions of individual investors — you got in during the frenzy last year when it was hitting $700 and now are licking your portfolio’s wounds with the stock in the $400 range.
The run on the stock continues, although it has lost another 19 percent so far this year even as the Standard & Poor’s 500 index has recovered a bit — gaining more than 11 percent.
And Apple isn’t alone. Its peers in the tech industry in the U.S. market, as tracked by Standard & Poor’s via its information and technology index, are up so far this year by a measly 3 percent.
Perhaps Apple will still be a tech leader. Or perhaps it will take a backseat to Samsung Electronics (SSNLF), which continues to be on a tear. Samsung is up more than 100 percent in just the past three years alone and up more than 265 percent over the past decade.
But do you want to make a bet on your retirement savings on whether the geeks with the propeller hats in the labs are going to come up with the next biggest and greatest tech breakthrough?
Sure, you do.
You do, because you know that you need to at least have some investments that can and will grow your portfolio beyond just stacking up dividends.
And fortunes are made by bringing the world new technologies, from electronic gadgets that we didn’t know we couldn’t live without to new energy technologies and a host of other major and minor advancements that drive the economy and the markets.
But you need to be careful. Don’t just get on a company’s bandwagon — be it Apple, Intel Corp. (INTC) or Advanced Micro Devices, Inc. (AMD) or a host of other technology companies that have created little more than massive losses, anywhere from 10 percent to as much as 65 percent in just the past 12 months alone.
Even Samsung, a favorite company of mine for decades both for its products as well as its shares, has risks that come attached with it for any and all investors, despite its long, positive track record.
Tech That Pays
A better way to get the advances of the world of technological innovations while also getting high and rising dividends is through a favorite company of mine that’s in the business of financing and investing in a wide and varied collection of technology companies.
Hercules Technology Growth Capital, Inc. (HTGC) is a business development company set up under the U.S. Investment Company Act of 1940. It is headquartered in Palo Alto, Calif., at 400 Hamilton Ave.
That’s about four miles from Google’s headquarters, 11 miles or so from Apple’s headquarters and some 12 miles from Samsung Electronics’ U.S. development office.
It also has offices in Chicago; New York; Boulder, Colo.; and McLean, Va.
The McLean office is crucial. The power of the hand of government to be supportive or restrictive has been and can be life-sustaining for a tech company. It can also deal a deathblow. Capitol Hill, the White House, the Supreme Court and countless bureaucrats set rules, enforce regulations and give out grants and licenses.
Hercules operates as an investment company. It focuses on a collection of technology companies in consumer and industrial markets, healthcare and related advanced technologies, and clean technologies. It also lends to established midsize technological companies that have proven to be stable and reliable businesses.
Hercules acts as a classic, old-time merchant bank. It lends money while taking an interest in the businesses and companies in which it invests. And its asset base continues to climb; it’s up more than 50 percent over the trailing year. With that ramp up in the value of the company itself, revenues continue to climb on average for the past three years alone by more than 29 percent.
With its operating margins running in the 70 percent range and with less leverage than many traditional banks and financials, it runs its business with a focus on being sustainable — even when some of its investments run into hiccups, which tech always has.
And unlike most banks and financials that are having trouble finding the right companies to lend to — Hercules continues to do well — generating returns on shareholder’s equity and the underlying assets of the company which are multiples of what is considered normal for a commercial or merchant bank.
The best part is that it performs well in addition to paying its shareholders a big cut of the profits.
The dividend yield is running currently at 7.58 percent, up nearly 9 percent over the past year.
Don’t think that this is just about dividends. The company’s profits from financing and from its underlying investments have driven the shares to generate returns of more than 52 percent over the past few years — more than double the returns of the general tech market as tracked by Standard & Poor’s in the U.S. market.
If you think that you’ve missed it or that you and I might be chasing an overvalued and overpriced stock, think again. The stock is still a value, trading at a mere fraction above its book value. Successful banks and financials tend to trade at multiples of book value. So not only does Hercules pay and perform well, but it also remains a value.
The company also has two preferred stocks with 7 percent coupons. But avoid those. They are callable in about two years or less, which would result in a much lower effective yield of only about 4 percent.
Instead, go with common shares. With the dividend running at 7.58 percent, they pay a lot more without the risk of the inevitable call. You’ll get to also reap the gains of the company and its smart and sustained group of underlying financings and investments in the best of U.S. technologies.
Buy Hercules Technology Growth Capital common stock under the symbol HTGC below $15 a share. For more information from the company, go to its website at www.htgc.com.
— Neil George
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