14.6%-Yielding TriplePoint Venture Stock Pops on Solid Q3
January 10, 2025
Keep High-Yielding TriplePoint on Your Radar
With interest rates on the decline and the U.S. economy going strong, more and more smaller and mid-sized companies are turning to business development companies (BDCs) for capital.
Higher interest rates are obviously better for BDCs that have a lot of floating loans, so lower interest rates will result in lower interest income from the portfolio. However, lower interest rates should also result in more transaction activity.
BDCs, or what we call “Alternative Banks” here at Income Investors, are also a great option for passive income investors. Traditional financial outfits have to pay the government between $0.25 and $0.35 in taxes on each dollar they make in profit. Meanwhile, BDCs pay little or no corporate tax on their earnings.
In exchange for this benefit, BDCs must distribute at least 90% of their ordinary taxable income to shareholders. As a result, these companies pay out some of the biggest dividend yields around.
Keep in mind, not all BDCs are created equal…or rather, not all BDCs lend to the same kinds of companies.
For example, a Texas-based BDC might focus on lending to oil and gas companies. Or a New-York-City-based BDC might focus on lending to companies in Manhattan. A California firm might devote itself entirely to Silicon Valley start-ups.
And that’s where TriplePoint Venture Growth BDC Corp (NYSE:TPVG) comes in.
When it comes to technology companies, everyone knows an investor could make a fortune by investing in the right Silicon Valley company.
Just how much one could make depends on when they get involved. Investors and venture capitalists like Bill Gates, Peter Thiel, and Neil Shen don’t wait until companies go public. They get in on private tech stocks before they launch their initial public offerings (IPOs). That’s not something everyday Americans like us can do.
Or is it?
California-based BDCs offer a loophole. These firms provide start-ups with the financing they need to grow their business. In return, the BDC receives an ownership stake in these companies long before their stocks debut on Wall Street.
And that’s what makes Menlo-Park-California-based TriplePoint Venture stock such a compelling option.
About TriplePoint Venture Growth BDC Corp
TriplePoint Venture Growth BDC Corp specializes in companies at the venture-growth stage. This phase comes well after the seed stage, early stage, and later stage, but occurs just before a company goes public. (Source: “Investor Presentation Quarter Ended September 30, 2024,” TriplePoint Venture Growth BDC Corp, November 6, 2024.)
Venture-growth stage companies have moved beyond product development and are generating at least $20.0 billion in revenue, have received several rounds of venture capital, have a solid market position, and are preparing to go public.
TriplePoint primarily focuses on companies in technology, life sciences, and other high-growth industries. It provides these companies with highly custom, senior secured growth-capital loans with targeted returns of 10% to 18% on debt investments from interest and fees. The BDC also gets an equity stake in each company, too.
If you can judge a BDC by the companies it invests in (and you should, really), it’s tough to beat TriplePoint Venture. It has financed more than 650 leading companies, including some of the industry’s biggest names: Beyond Meat, Casper, Etsy Inc, Facebook, Inc., Shazam Entertainment Ltd, Square Inc, and YouTube.
As of September 30, 2024, TriplePoint Venture Growth BDC held debt investments in 44 portfolio companies, warrants in 95 companies, and equity investments in 48 companies. The total cost and fair value of these investments were $739.0 million and $721.0 million, respectively. (Source: “TriplePoint Venture Growth BDC Corp. Announces Third Quarter 2024 Financial Results,” TriplePoint Venture Growth BDC Corp, November 6, 2024.)
Solid Q3 Results
For the third quarter ended September 30, 2024, TriplePoint’s total investment income was $26.5 million with a weighted average annualized portfolio yield of 15.7% on debt investments. Net investment income (NII) was $13.8 million, or $0.35 per share.
As a result, the BDC generated $8.8 million in net realized and unrealized gains, resulting in a net increase in net assets resulting from operations of $22.6 million, or $0.57 per share.
TriplePoint ended the quarter with total liquidity of $338.6 million and total unfunded commitments of $74.0 million.
For the first nine months of 2024, TriplePoint earned NII of $41.9 million, or $1.08 per share, and generated total investment income of $82.9 million. It funded $85.2 million in debt investments to 10 portfolio companies with a 14.5% weighted average annualized portfolio yield at origination. Moreover, 23 portfolio companies raised an aggregate $1.7 billion in capital in private financings.
Commenting on the third-quarter results, Jim Labe, TriplePoint’s chairman and chief executive officer, said, “During the third quarter, we made progress executing our plan for positioning TPVG for the future despite the continued challenging conditions in the venture capital markets. We remain focused on managing our portfolio, selectively increasing our investment activity and taking steps to prepare for when market conditions improve.”
Sajal Srivastava, the BDC’s president and chief investment officer, added, “We are pleased with the success of TPVG portfolio companies raising capital. 23 of our debt portfolio companies have raised $1.7 billion in the nine months ended September 30, 2024 which bodes well for their future progress and credit quality.”
Declares Q4 Dividend of $0.30 Per Share
Since its inception in March 2014, TriplePoint’s cumulative NII has consistently exceeded cumulative distributions. For the fourth quarter of 2024, it declared a distribution of $0.30 per share, or $1.20 per share on an annual basis, for a forward yield of 14.65%.
The fourth-quarter distribution brings the BDC’s total declared distributions to $16.05 per share since its March 2014 IPO.
On occasion, TriplePoint can also pay out special dividends. In December 2023, the BDC paid a special dividend of $0.10 per share. This payment was part of its estimated undistributed taxable earnings from NII. It also paid a special dividend of $0.15 per share in the fourth quarter of 2014 and $0.10 per share in the fourth quarter of 2018. (Source: “Dividends,” TriplePoint Venture Growth BDC Corp, last accessed December 12, 2024.)
As you can see in the chart below, investors responded favorably to TriplePoint’s third-quarter 2024 financial results, sending TPVG stock considerably higher.
Between November 6, the day the BDC announced its financial results, and December 2, 2024, TriplePoint Venture stock rallied an impressive 28.5%.
TriplePoint Venture stock has retreated a little since hitting the December 2 intraday high of $8.50, but continues to trade near that level. Conservative Wall Street sees some upside over the coming quarters, with analysts providing a 12-month share price target high of $9.00 per share, which points to potential upside of 10.5%.
Chart courtesy of StockCharts.com
The Lowdown on TriplePoint Venture Stock
TriplePoint Venture Growth is a leading BDC devoted to venture-growth stage companies in technology and other high-growth industries.
Over the past few years, management has positioned itself at the forefront of emerging industries, from digital marketing and biofuel to social media and health care.
With a strong balance sheet and enviable portfolio of companies, TriplePoint’s objective is to target returns of 10% to 18% on debt investments from interest and fees with additional upside through equity “kickers” in the form of warrants.
In addition to getting investors on the inside track of the next generation of tech IPOs, TriplePoint Venture stock is also home to a reliable, high-yield dividend.
