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Check Out the Big Dividend on this Profitable Small Cap with No Debt

December 27, 2013 4:18 pm
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Harvest Capital Corp. (NASDAQ: HCAP) is a small cap with a big time dividend.

A business development company, Harvest Capital Corp. has a dividend yield of 8.95 percent. Required by law to pay out most of its income in dividends due to tax considerations, business development companies generally have high yields. But the high yield of Harvest Capital Corp. is made even more appealing as the company has no debt.

Harvest Capital Credit “…provides customized financing to small and midsized businesses located throughout North America. … products include senior secured debt, unitranche term loans, junior secured term loans, subordinated debt investments and minority equity co-investments.” The company went public in May 2013 at $15.00 a share. It is now trading in that same range.

Like so many small caps, Harvest Capital Credit does not have much in the way of analyst coverage.

That is a tremendous opportunity for long term investors. The profit margin of Harvest Capital Credit is around 100 percent. Clearly that is unsustainable, but it does demonstrate the excellent management of the company and its effective operations.

Many of the indicators of Harvest Capital Credit are just as compelling as the dividend and the profit margin.

The price-to-earnings ratio is under 4. The operating margin is over 60 percent. Investing legend Peter Lynch considers the price-to-earnings growth ratio to be the most important indicator for a stock. Fairly valued, it should be one for a publicly traded company. For Harvest Capital Credit, it is just 0.78. The assets are undervalued, too.

Harvest Capital Credit has a tiny volume. The short ratio is miniscule as few are betting the share price will fall. This appears to be an undervalued small cap with a big dividend that should be an ideal holding for the long term.