Hercules Capital Announces New Supplemental Cash Distribution of $0.32 per Share
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Insights
The announcement by Hercules Capital, Inc. of a new supplemental cash distribution is a strategic financial decision that directly affects shareholder returns. The distribution of $0.32 per share, paid quarterly, represents an increase in cash returns to shareholders and could be indicative of the company's strong cash flow position and commitment to delivering shareholder value. This move may be well-received by investors looking for steady income streams, particularly in a market environment where yield is highly sought after.
From a financial analysis perspective, the decision to distribute additional income could signal that the company's management is confident in its ongoing ability to generate sufficient taxable income. It's important to note that the supplemental distribution is being paid out of undistributed taxable income, which suggests that Hercules has been able to accumulate earnings beyond what was necessary for previous distributions. This might reflect positively on the company's operational efficiency and financial health.
However, investors should consider the sustainability of such distributions. While the additional income is favorable in the short term, it is crucial to assess whether the company can maintain or grow its earnings to support similar or increased distributions in the future without compromising its financial stability or growth prospects.
From a taxation standpoint, the supplemental distribution's impact on shareholders will vary depending on their tax status and jurisdiction. For U.S. shareholders, the distributions are likely to be considered as ordinary income or qualified dividends, which are subject to different tax rates. The tax attributes of the distributions, which are determined annually, are essential for shareholders to understand the tax implications of their investment income.
For non-U.S. shareholders, the designation of a significant portion of the distribution as 'Qualified Interest Income' (QII) is particularly relevant. With 81.44% of the distribution for Q4 2023 being QII, non-U.S. shareholders may benefit from an exemption from U.S. withholding tax, assuming proper documentation is provided. This aspect of the distribution makes Hercules' shares potentially more attractive to foreign investors, as it could enhance their after-tax return on investment.
It is also worth noting that the company's ability to spill over excess taxable income into the following year provides flexibility in managing distributions. This could help smooth out payments to shareholders in years where taxable income fluctuation occurs, though it requires careful planning and communication to avoid shareholder confusion.
Within the industry, variable distribution policies like the one maintained by Hercules Capital are not uncommon among investment companies and can be used as a tool to align distributions with earnings performance. The policy of aiming to distribute between 90% to 100% of the company's taxable quarterly income is a common practice for regulated investment companies (RICs) to meet the requirements for favorable tax treatment.
The market's reaction to such announcements typically depends on the broader economic context and the company's sector performance. In the current economic landscape, where interest rates and market volatility are concerns, the predictability and stability of dividends can be a strong factor in investment decisions. Hercules Capital's ability to declare supplemental distributions may set it apart from competitors and could be a sign of a robust financial position, which might influence investor sentiment positively.
Long-term, the company's approach to distributions can affect its stock price and market perception. A consistent record of paying out dividends can lead to a reputation as a reliable income stock, potentially attracting a different investor base, such as income-focused funds and conservative investors. Conversely, if the company fails to maintain its distribution levels, it could lead to negative market sentiment.
The New Supplemental Cash Distribution is in Addition to the Regular Quarterly Cash Distributions and will be Distributed Equally over Four Quarters Beginning with the Fourth Quarter of 2023 Distribution Payable in March of 2024
The New Supplemental Cash Distribution of
This
Record Date |
February 28, 2024 |
|
Payment Date |
March 6, 2024 |
This
Hercules' Board of Directors maintains a variable distribution policy with the objective of distributing four quarterly distributions in an amount that approximates
The determination of the tax attributes of the Company's distributions is made annually as of the end of the Company's fiscal year based upon its taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of its distributions for a full year. Of the distributions declared during the quarter ended December 31, 2023,
Pursuant to Internal Revenue Code Section 871(k), certain funds generate “Qualified Interest Income” (QII) that may be exempt for
The percentage of QII for distributions declared for the fourth quarter ended December 31, 2023 on Hercules’ common stock is
About Hercules Capital, Inc.
Hercules Capital, Inc. (NYSE: HTGC) is the leading and largest specialty finance company focused on providing senior secured venture growth loans to high-growth, innovative venture capital-backed companies in a broad variety of technology, life sciences and sustainable and renewable technology industries. Since inception (December 2003), Hercules has committed more than
Hercules, through its wholly owned subsidiary business, Hercules Adviser LLC (“Hercules Adviser”), also maintains an asset management business through which it manages investments for external parties. Hercules Adviser is registered as an investment adviser under the Investment Advisers Act of 1940.
Hercules’ common stock trades on the New York Stock Exchange (NYSE) under the ticker symbol “HTGC.” In addition, Hercules has one retail bond issuance of
Forward-Looking Statements
This press release may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We may use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and should not be relied upon in making any investment decision. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations. While we cannot identify all such risks and uncertainties, we urge you to read the risks discussed in our Annual Report on Form 10-K and other materials that we publicly file with the Securities and Exchange Commission. Any forward-looking statements made in this press release are made only as of the date hereof. Hercules assumes no obligation to update any such statements in the future.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240213325616/en/
Michael Hara
Investor Relations and Corporate Communications
Hercules Capital, Inc.
(650) 433-5578
mhara@htgc.com
Source: Hercules Capital, Inc.
FAQ
What is the new supplemental cash distribution announced by Hercules Capital, Inc. (HTGC)?
When will the new supplemental cash distribution be paid out?
What is the regular quarterly cash distribution amount announced by Hercules Capital, Inc. (HTGC)?
What is the objective of Hercules Capital, Inc. (HTGC) Board of Directors in terms of distributing income?
What percentage of Qualified Interest Income (QII) was declared for distributions in the fourth quarter of 2023 by Hercules Capital, Inc. (HTGC)?
