Published:
December 9, 2007
NGP Capital Resources (Nasdaq: NGPC, $16.79) is a
business development company that provides financing to small and
mid-sized energy companies.
NGPC is affiliated with privately held NGP Energy Capital
Management, a Texas firm with more than $3.5 billion in capital.
The company focuses on domestic oil and gas firms and midstream
companies that process and transport oil and gas. It also
invests in coal, power generation and distribution, and
alternative energy companies. It offers debt financing of
between $10 and $100 million and may take small equity stakes in
the firms in which it invests.
Based on the latest quarterly dividend of $0.51 per share, the
company carries a forward yield of 12.6%. Over
the past four quarters, NGPC has distributed $1.44 per share,
still giving the stock a trailing
yield of more than 8.5%.
NGPC's objective is to pay out the majority of its taxable
income to shareholders. As earnings have increased, yearly
payouts have risen sharply, shooting up from $0.66 per share in
2005 to $0.92 in 2006 to $1.44 in 2007. Over the three years,
that amounts to an increase of +118%!
For the first nine months of 2007, NGPC earned $1.49 per share
versus $0.56 in the comparable period of 2006, allowing it to
substantially increase its dividend distribution. Of the $1.44
per share paid out for 2007, $1.13 came from investment income
taxable at your ordinary income tax rate, and $0.31 from capital
gains taxable at the 15% rate. As such, the firm is suitable for
a tax-deferred account.
As of the end of the third quarter of 2007, NGPC held interests
of some $425 million in 16 companies. About half of the
portfolio was in senior notes similar to preferred shares. The
company also held nearly a third of the portfolio assets in
Treasury bills awaiting investment opportunities. The weighted
average yield of its investment portfolio was 12.2%, excluding
Treasuries.
NGPC is growing rapidly, but investors should be aware that a
sharp fall in oil and gas prices created by a deep recession
could derail the ability of some of its portfolio companies to
repay their debt. Still, oil and gas would have to drop
significantly below current levels for that risk to be
significant.
Action To Take --->
NGPC has a history of both rising earnings and distributions. It
is a suitable stock for investors who are willing to assume the
risk that oil and gas prices will remain robust, despite a
possible U.S. economic slowdown.Good investing!
Carla Pasternak
Editor
High-Yield
Investing
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