TriplePoint Venture Growth (TPVG) provides investors access to venture-capital-backed, pre-initial-public-offering (IPO) companies and currently offers a sustainable dividend yield of 9.3%, explains Bryan Perry, growth and income expert and editor of Cash Machine.
In addition, the business development company (BDC) has equity and warrant investments that are benefiting from increased market valuations.
The company’s investment objective is to maximize total return to shareholders, primarily in the form of current income and capital appreciation, by issuing loans with equity warrants to venture growth-stage companies focused on technology, life sciences and other high growth industries backed by a select group of leading venture capital investors.
Following a very cautious year of risk lending, 2021 is proving to be a major recovery year of VC-backed lending. TPVG’s business model is to maintain strong relationships with venture capital partners to gain access to the short-term debt needs of their late-stage companies.
The company’s investment pipeline is growing, and TPVG expects to make more than $300 million of debt investments this year. Even during 2020, TPVG never missed a dividend payment and has a strong track record of dividend coverage and solid investments. First-quarter 2021 financial results showed strong business momentum, providing a big tailwind for the company and the stock.
CEO Jim Labe commented, “We increased signed term sheets by 142% year over year. And our pipeline continues to be more than a billion. We expect to accelerate funding throughout 2021. We remain in a strong position to generate NII or net investment income in excess of our distribution over the long term. A record 52 billion of capital was deployed across almost 1,300 deals in the late-stage venture market.”
This is the segment which TPVG operates in and targets. Its early debt and warrant investment into CrowdStrike Holdings Inc. (CRWD) was a highly profitable exit for the company and a great example of the potential opportunity TPVG has in the venture capital lending segment.
As of March 31, 2021, the company held debt investments in 33 portfolio companies, warrants in 67 portfolio companies and equity investments in 27 portfolio companies. The total cost and fair value of these investments were $643.7 million and $633.7 million, respectively.
The company ended the quarter with $401 million in assets, or a Net Asset Value of $13 per share, which increased $0.38 per share over the fourth quarter of 2020. The total portfolio of loans was paying a blended yield of 13.1% before expenses.
The stock pays a quarterly dividend of $0.36 per share. Shares of TPVG are trading at $15.50 and just off the high for 2021. Per the company’s Q1 guidance, lending to VC-backed companies is picking up rapidly as the year is progressing, raising the prospect of future upside sales and earnings surprises.
Trading at 1.2x book value with a payout ratio of 84.6%, the stock and the dividend look very healthy and, in my view, provide a good fit for our model portfolio. Buy Triple-Point Venture Growth under $16.
