A 10.7% Yielder Breaking Its Back

Too much of a good thing... [Shield] AN OXFORD CLUB PUBLICATION [Wealthy Retirement]( [View in browser]( SPONSORED [The Truth Behind Biden's "Historic" Presidency]( [One dollar bill is sprayed in the hand of a man on a black background]( Joe Biden is breaking all sorts of records... just NOT the type you'd want to brag about. We recently saw the biggest inflation spike since 1982. But that's just half the story. Fuel oil is up 46.5%. Gasoline is up 40%. Used cars are up 40.5%. Meat, fish, poultry and eggs are up 12.2%. It hasn't been THIS expensive to eat, drive or keep your house warm in DECADES! If you're worried about inflation (or any of the other dozens of issues facing our economy right now)... and you want to know what you can do about it... [I urge you to go here now](. Editor's Note: Many of the dividend payers graded by Safety Net are in a precarious spot... And according to Chief Income Strategist Marc Lichtenfeld, there's a storm coming this year in the form of a bear market. But then again, another expert is arguing the opposite... On Saturday, April 30, at 6 p.m. ET, for the first time ever, The Oxford Club is hosting a live - and completely uncensored - debate among two of the brightest minds in finance: Marc and co-founder of Monument Traders Alliance Bryan Bottarelli. We're calling it The Big Debate: Will the Market Crash in 2022? During the event, Marc and Bryan will debate where the market is heading and which investing strategy is most effective in today's market... If you know anything about Marc and Bryan, you know that the gloves will come off. Reserve your seat at the live virtual debate [HERE](. (NOTE: Clicking this link will opt you on to The Oxford Club Special Opportunities free e-letter and offers from us and our affiliates that we think might interest you. [Privacy Policy.]( It's entirely free to attend! [Get the details on The Big Debate.]( (NOTE: Clicking this link will opt you on to The Oxford Club Special Opportunities free e-letter and offers from us and our affiliates that we think might interest you. [Privacy Policy.]( - Kyle Wehrle, Assistant Managing Editor [SAFETY NET]( [Is This 10.7% Yield Too Strong for Its Own Good?]( [Marc Lichtenfeld, Chief Income Strategist, The Oxford Club]( [Marc Lichtenfeld]( Hercules Capital Inc. (NYSE: HTGC) is a business development company (BDC) that is focused on lending capital to emerging companies. It has funded more than 560 companies and has had over 230 exits in the form of initial public offerings or mergers. The companies it has funded include... - Impossible Foods, the maker of the plant-based Impossible burger - Vela Trading, which makes market data software - Carbon Health, which provides primary and urgent care to nearly two-thirds of the U.S. Hercules Capital's dividend situation is a bit unique because it regularly pays a variable supplemental dividend in addition to its quarterly dividend. For example, in March 2022, the company paid a $0.33 per share quarterly dividend with a $0.15 per share supplemental dividend. Annualizing both payments comes out to a 10.7% yield. The prior quarter, the supplemental dividend was $0.07 per share. Hercules Capital began paying supplemental dividends in 2018, but it didn't start adding them to every quarter's dividend payment until 2021. The company hasn't cut its payout since the financial crisis. Since then, the regular dividend to shareholders has steadily increased, though not necessarily every year. While the Greek demigod Hercules is known for his strength, Hercules Capital's double-digit dividend yield may be too strong. BDCs report net investment income. This is the amount of money a BDC makes from its investments. Net investment income is the metric we use to determine dividend safety for this category of companies. Net investment income dipped from $157 million in 2020 to $150 million in 2021. Safety Net does not like to see declining net investment income. This year, I estimate that net investment income will get back on the right track and show growth rather than further weakening. SPONSORED [$10 Stock Creates 3D-Printed Rollable Smartphones??]( [Rollable Smartphones]( Apple is reportedly collaborating with the company on a $330 million facility to add its tech to the iPhone and iPad. [See why this $10 company could be the "Ultimate Growth Stock."]( What's especially concerning is that Hercules Capital paid more in dividends than it generated in net investment income. In 2021, Hercules paid $176 million in dividends while net investment income totaled only $150 million. In other words, for every $1 that Hercules Capital generated from its investments, it paid shareholders $1.17. [Chart: Can Hercules Capital Shoulder Its Dividend?]( Making matters more troubling is the fact that the dividend payout is forecast to rise to $195 million in 2023 while net investment income still won't come close to covering the dividend. Hercules Capital can get away with simply reducing the supplemental dividend without it looking like a cut. But when a supplemental or special dividend is paid on a regular basis, that kind of strategy isn't fooling anyone. Whichever way you want to phrase it, the total dividend that Hercules Capital shareholders have come to expect is at risk. Unless the company's net investment income surges beyond expectations this year, there is a high risk of a reduction in the total dividend. Dividend Safety Rating: D [Dividend Grade Guide]( If you have a stock whose dividend safety you'd like me to review in the Safety Net column, leave the ticker symbol in the [comments]( section. Before you do, check to see whether I've written about your favorite stock recently. Just click on the magnifying glass on the upper right part of the [Wealthy Retirement homepage]( and enter the company's name in the search box. 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