We recently compiled a list of the 13 Best Dividend Stocks to Buy Under $50.In this article, we are going to take a look at where Hercules Capital, Inc. (NYSE:HTGC) stands against the other dividend stocks.
AI stocks are stealing the spotlight today as the appetite for these services continues to gain traction globally. This surge in interest has temporarily diverted investor attention from dividend-paying equities. This year, dividend stocks have once again lagged behind the market, a trend highlighted by Dan Lefkovitz, a strategist at Morningstar Indexes, during a recent interview with the firm. Here are some commeants from the analyst:
“I just want to mention two interesting observations. One, interest rates have come down this year, yet dividend-paying stocks have underperformed. There’s this conventional wisdom that we’ve talked about in the past that falling rates are good for dividend payers and rising rates are bad for dividend payers, yet dividend stocks have underperformed in a falling rate environment. Second, outside of the US, dividend stocks are a little bit ahead of the broad market. We can table those, but I just thought they’re interesting to note.”
That said, analysts predict this trend won't persist, as dividend stocks are expected to regain their strength and prominence soon. Bank of America analyst Ohsung Kwon suggested that a dividend revival might be on the horizon. His team anticipates a 10% increase in overall dividends from the companies in the broader market in 2025, driven by investors' growing preference for cash. Highlighting this trend, major tech firms began paying dividends for the first time this year. According to Janus Henderson, these tech giants accounted for roughly 25% of the total underlying dividend growth in the US during the third quarter.
When it comes to dividend stocks, analysts consistently recommend prioritizing dividend growth over chasing high yields. Dan Lefkovitz, a strategist with Morningstar's Index team, emphasized this approach, pointing out that dividend growth is a completely different ball game compared to high-dividend investing. He explained that dividend growth signals a company's strong competitive position and improving prospects. A dividend-growth portfolio typically mirrors the market more closely in terms of sector exposure and growth-versus-value traits, including metrics like price-to-earnings ratios. While it maintains a value bias, it leans more toward the core market than a high-dividend portfolio.
Over the years, companies with a track record of steadily increasing their dividends have generally outperformed non-dividend-paying firms while experiencing lower volatility. Although dividends are not set in stone and can vary, as seen in the current climate, they have significantly contributed to overall equity returns over time. Between 1930 and 2023, dividends and their reinvestment made up 40% of the annualized total returns in the broader market, with the rest driven by capital gains.
Maintaining steady dividend growth is a demanding goal, as it necessitates exceptional financial stability. For businesses still in their growth phase with relatively lower stock prices, assessing the sustainability of their dividends becomes an essential and simple factor to analyze. This article explores some of the top dividend stocks currently priced under $50.
Our Methodology:
For this list, we used a Finviz stock screener to find dividend stocks trading below $50 as of the close of December 20. From the initial list, we narrowed down the selection to companies that pay regular dividends to shareholders and possess strong dividend policies, ensuring consistent future dividends. From the resultant list, we picked 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s Q3 2024 database of 900 hedge funds and their holdings. These stocks are ranked in ascending order of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
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Share Price as of the Close of December 20: $19.21
Hercules Capital, Inc. (NYSE:HTGC) is a California-based capital market company that mainly offers senior secured loans to high-growth, venture capital-backed, and institutional-backed companies in a wide range of industries. The business development company emphasizes emerging trends in technology, life sciences, and green energy. A significant portion of Hercules's assets is tied up in debt instruments that include warrants, equity, and options, enabling the company to profit from the success of the businesses it supports. Since its founding, more than 250 of its portfolio companies have either gone public through IPOs, merged with other entities, or been acquired, according to the company. In the past 12 months, the stock has surged by nearly 16%.
In the third quarter of 2024, Hercules Capital, Inc. (NYSE:HTGC) reported revenue of $125.2 million, which showed a 7.28% growth from the same period last year. The company posted a net investment income (NII) of $83.2 million, or $0.51 per share, reflecting an 8.3% year-over-year growth. This NII provided 128% coverage of the base cash distribution. During the same period, total gross debt and equity commitments reached $430.7 million, while total gross funding amounted to $272.0 million. The firm's assets under management grew to approximately $4.6 billion, marking a 10.9% increase compared to the previous year.
Hercules Capital, Inc. (NYSE:HTGC) is one of the best dividend stocks under $50 as the company has a strong history of paying supplemental dividends to shareholders. On October 28, the company declared a quarterly dividend of $0.40 per share and a supplemental dividend of $0.08 per share. In addition, the stock offers an attractive dividend yield of 9.94%, as of December 23.
At the end of Q3 2024, 7 hedge funds tracked by Insider Monkey reported having stakes in Hercules Capital, Inc. (NYSE:HTGC), compared with 11 in the previous quarter. These stakes have a collective value of over $18.4 million. Among these hedge funds, Two Sigma Advisors was the company's leading stakeholder in Q3.
Overall HTGC ranks 13th on our list of the best dividend stocks to buy under $5. While we acknowledge the potential of HTGC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than HTGC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
