There has been a massive shift from companies quickly going for Initial Public Offerings to staying private for much longer (or never going through an IPO). The growth in the number of companies staying private is reflected in the growth of private credit – and Hercules Capital Inc. (HTGC) benefits, says Tim Plaehn, editor of The Dividend Hunter.

Economist John Mauldin shared some fascinating figures in one of his recent newsletters...

• In 1996, 8,090 companies were listed on the US stock market.
• As of April 2024, only 4,300 companies were publicly listed.
• Over the last 20 years, the number of companies in the US backed by private equity firms climbed from 1,900 to 11,200.

Meanwhile, a September 2024 report from McKinsey noted this: “Private credit has been one of the fastest-growing segments of the financial system over the past 15 years. The asset class, as commonly measured, totaled nearly $2 trillion by the end of 2023, roughly ten times larger than it did in 2009.”

Many financial services companies are focused on growing their private credit lending. Business Development Companies (BDCs) are publicly traded companies that have operated exclusively in this field for decades.

According to its website, HTGC is the largest BDC focused on venture lending and the lender of choice for innovative entrepreneurs and their venture capital partners. Investing in BDCs is about earning an attractive dividend yield. Launched with a 2005 IPO, HTGC has paid continuous quarterly dividends coupled with regular supplemental dividends.

HTGC did reduce its regular dividend during the Great Financial Crisis. Since then, though, the regular dividend has doubled from $0.20 to $0.40 per share. When net investment income allows, HTGC will pay a supplemental dividend along with the quarterly payout. Here are the supplemental totals for the last four years:

• 2021: $0.26 per share
• 2022: $0.60 per share
• 2023: $0.32 per share
• 2024: $0.32 per share

At the recent share price of $18.85, HTGC yielded 8.5% on the regular dividend rate. Investors in this BDC can expect regular dividend increases plus a steady stream of supplemental dividends.

The proof is in the investment results. Since the end of 2009 (when the dividend was cut), HTGC has earned a total return of 683%. Of that, 81% was share price appreciation. Investors have earned 600% on their HTGC investments in cash dividend income over the last 14 years.

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