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How HTGC Dividends Work and When You Get Paid

By Adrian Watts · Stocks and Funds Writer

HTGC pays dividends monthly, but the amount varies by quarter

Hercules Capital Inc. (HTGC) distributes dividends to shareholders every month, not quarterly like many other stocks. The monthly payment structure is one reason investors are drawn to it — you receive income twelve times a year instead of four. However, the dollar amount per share changes from quarter to quarter based on how much profit the company generates and how much cash it has available to distribute.

HTGC is a business development company, or BDC, which means it is required by law to distribute at least 90 percent of its taxable income to shareholders. That legal requirement is why BDCs tend to pay higher dividends than regular corporations. The monthly payment schedule reflects HTGC's structure as a closed-end fund — it pools investor money to make loans and equity investments in middle-market companies, then passes the returns through to you.

The company announces its monthly dividend rate each quarter, usually in the earnings release. You will see one rate for January, February, and March; a different rate for April, May, and June; and so on. This means you know what you are getting for three months at a time, but you should not assume the rate stays the same year to year.

Key Takeaways

  • HTGC distributes dividends every month, with the per-share amount set quarterly based on earnings and available cash.
  • As a BDC, HTGC must distribute at least 90 percent of taxable income, which is why its dividend yield is typically higher than the stock market average.
  • The ex-dividend date (when you must own the stock to receive the payment) and the payment date are different; check HTGC's investor relations page for the exact calendar.
  • Monthly dividends are paid in cash directly to your brokerage account, and the full amount is taxable as ordinary income in the year you receive it.

How the quarterly rate-setting works

HTGC's board of directors meets after each quarter ends and votes on the dividend rate for the next three months. That rate is announced in the earnings release, which comes out roughly 30 to 45 days after quarter-end. For example, in late April the company might announce that the May, June, and July dividend will be $0.34 per share, then in late July announce a different rate for August, September, and October.

The rate depends on two things: how much net investment income HTGC earned (interest and fees from its loans, plus gains on its equity stakes), and how much cash the company has on hand. If earnings are strong and cash is plentiful, the rate may stay the same or rise. If earnings fall or the company needs to preserve cash, the rate drops. This is different from a regular corporation, which can cut its dividend whenever it wants — HTGC cannot pay less than 90 percent of taxable income without violating its BDC charter.

You can find the current and historical dividend rates on HTGC's investor relations website under "Distributions" or "Dividends". The page lists the ex-dividend date and payment date for each monthly distribution, which matters if you are buying or selling the stock around month-end.

Ex-dividend dates and when the payment actually hits your account

To receive a monthly dividend, you must own the stock before the ex-dividend date. This is the date the company sets as the cutoff — if you buy on the ex-dividend date or after, you do not receive that month's payment. The ex-dividend date is usually around the 10th or 15th of the month, though it varies. The payment date (when the cash actually appears in your brokerage account) is usually 10 to 15 days later.

For example, if the ex-dividend date is June 14 and the payment date is June 28, you must own HTGC shares by the close of business on June 13 to receive the June dividend. If you sell on June 14, you do not get it. This matters most if you are planning to buy or sell around month-end. Check the investor relations calendar before you trade.

Tax treatment of HTGC dividends

HTGC dividends are taxed as ordinary income, not as may have access to dividends. This means they are taxed at your regular income tax rate, which is higher than the preferential rate applied to most stock dividends. If you hold HTGC in a taxable brokerage account, you will owe federal income tax on the full amount you receive, plus state income tax if your state has one.

The company sends you a Form 1099-DIV each January showing how much you received in the prior year. You report this on your tax return. If you hold HTGC in a retirement account like an IRA or 401(k), the dividends are not taxed until you withdraw money from the account, so the tax hit is deferred.

Because HTGC dividends are taxed as ordinary income, the after-tax return is lower than the headline yield might suggest, especially if you are in a high tax bracket. This is worth factoring in when you compare HTGC to other dividend-paying stocks or funds.

Why HTGC's dividend is higher than most stocks

HTGC typically yields 8 to 12 percent annually, depending on the quarter and the stock price. This is much higher than the average stock dividend, which is around 1 to 3 percent. The reason is the BDC structure. Because HTGC must distribute 90 percent of taxable income, it cannot retain earnings the way a regular corporation does. It also invests in middle-market companies that are riskier than large public corporations, so the interest rates and returns are higher to compensate for that risk.

The high yield also reflects the fact that HTGC shares trade at a discount to their net asset value, or NAV. The NAV is the per-share value of all the loans and investments HTGC owns. When the stock price is below NAV, the yield is higher because you are buying the same cash flows for less money. This discount exists because BDCs are less liquid than regular stocks and carry more risk.

What happens if HTGC cuts its dividend

HTGC has cut its dividend in the past, most notably during the 2020 pandemic downturn. When a BDC's earnings fall sharply, the board may lower the quarterly rate to stay within the 90 percent distribution requirement. A dividend cut usually causes the stock price to fall, because investors bought HTGC partly for the income.

If you own HTGC, monitor the quarterly earnings releases and the company's net investment income trend. If NII is declining, a rate cut may be coming. You can also look at the company's coverage ratio — the ratio of net investment income to the dividend. If coverage is below 1.0, the company is distributing more than it earned, which is unsustainable and often signals a cut ahead.

Reinvesting dividends automatically

Most brokerages offer a dividend reinvestment plan, or DRIP, which automatically buys new shares with your monthly dividend payment instead of sending you cash. This can be useful if you want to compound your returns over time, because you buy more shares every month and those shares generate their own dividends.

To set up a DRIP, log into your brokerage account, find HTGC in your holdings, and look for a "reinvest dividends" or "DRIP" option. The exact steps vary by broker. If you use a DRIP, you still owe taxes on the dividend in the year you receive it, even though you did not get the cash. The IRS treats a reinvested dividend the same as a cash dividend for tax purposes.

Frequently Asked Questions

Is HTGC's dividend safe or likely to be cut?

HTGC's dividend depends on the company's net investment income, which fluctuates with interest rates and the performance of its portfolio companies. The dividend is not may provide and has been cut before. Check the quarterly earnings report and the NII coverage ratio to assess the risk. A coverage ratio below 1.0 suggests a cut may be coming.

Do I have to hold HTGC for a certain amount of time to get the dividend?

No. You must own the stock on or before the ex-dividend date to receive that month's payment, but there is no minimum holding period. You can buy HTGC one day before the ex-dividend date and still receive the dividend, though this strategy (called "dividend capture") usually does not work because the stock price falls by roughly the dividend amount on the ex-date.

Can I use HTGC dividends to live on?

HTGC's monthly dividend can provide regular income, but remember that the rate changes quarterly and can be cut if earnings fall. Do not assume the current rate will continue indefinitely. Also factor in the tax bill — ordinary income tax on the full dividend amount is due each year, even if you reinvest the payment.

How does HTGC's dividend compare to a bond or a money market fund?

HTGC typically yields higher than investment-grade bonds or money market funds, but it carries more risk because the stock price can fall. Bonds and money market funds return your principal at maturity or on demand; HTGC shares fluctuate in value. The higher yield compensates for that risk, but it is not may provide.

What if I buy HTGC right after the ex-dividend date?

You will not receive the dividend that was just paid, but you will receive the next month's dividend (assuming you hold the stock through that ex-date). Each month is a separate distribution with its own ex-date, so missing one month does not affect future months.