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Growth & Income

All too often, stocks with an alluring dividend yield usually aren't able to sustain it for much longer. That doesn't seem to be the case with Triangle Capital Corporation (TCAP - Snapshot Report).

The company, which pays a dividend that yields a whopping 9.4%, is growing both its top and bottom lines and is even talking about raising its dividend over the next several quarters. Valuation is attractive too, with shares trading at just 10.4x forward earnings.

Earnings estimates have been soaring after the company recently delivered its 4th consecutive positive earnings surprise. It is a Zacks #2 Rank (Buy) stock.

Business Development Company

Triangle Capital is a business development company, or BDC, that provides capital to companies with annual revenues between $10 and $100 million. The capital provided is mostly in the form of subordinated debt, which has a lower priority than senior debt in the event of liquidity during bankruptcy. However, subordinated debt also carries higher rates of return.

Triangle Capital is a Regulated Investment Company, or RIC, for tax purposes. As long as the company distributes more than 90% of its income to stockholders each year, it doesn't have to pay taxes on that money. This helps avoid the double taxation that a normal dividend payment would receive if paid by a regular corporation.

Triangle Capital is headquartered in Raleigh, North Carolina and has a market cap of $350 million.

First Quarter Results

Triangle Capital reported much better than expected results for the first quarter of 2011. Net investment income per share came in at 46 cents, well ahead of the Zacks Consensus Estimate of 41 cents. It was a whopping 104% increase over the same quarter in 2010.

Total investment income rose 66% to $12.4 million due in large part to new portfolio investments which resulted in an increase in total loan interest, fee, dividend and paid-in-kind interest income.

Outlook

Analysts revised their estimates significantly higher off the strong quarter. As you can see in the Price & Consensus chart, consensus estimates for both 2011 and 2012 made a significant jump:

TCAP: Triangle Capital Corporation

It is a Zacks #2 Rank (Buy) stock.

Analysts are projecting solid growth for the company over the next two years. The 2011 Zacks Consensus Estimate is $1.80, or 14% higher than 2010 EPS. The 2012 consensus estimate currently stands at $1.95, corresponding with 8% growth.

9.4% Yield

Triangle Capital pays a dividend that yields a very attractive 9.4%. As a Regulated Investment Company, TCAP must pay out at least 90% of its earnings to shareholders through dividends to avoid taxation on that money. The company has been steadily increasing its dividend since going public in 2007:

TCAP: Triangle Capital Corporation

It looks like more dividend hikes are on the way too. Following strong first quarter results, management stated that it believes it is well-positioned to continue increasing its dividend over the next several quarters.

Valuation

The valuation picture also looks attractive. Shares trade at just 10.4x forward earnings, a discount to the industry average of 11.9x. It sports a PEG ratio of 1.1 based on a 5-year growth rate of 9.5%.

The Bottom Line

Triangle Capital offers investors solid growth potential and exceptionally strong income through a 9.4% dividend yield. With rising earnings estimates and talks of more dividend hikes, this stock seems like a steal at just 10.4x forward earnings.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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