One thing that is commendable about American Capital is the wealth of information (including a newsletter!) it provides for shareholders, not only on its website, but also with the earnings releases. To touch upon some of the key numbers that investors should be looking at, the fourth quarter dividend was increased to $0.88 a share, 11% higher than last year. Realized earnings increased 41% to $1.14 a share, and net asset value per share (NAV), a key valuation measure for BDCs, grew 20% year over year to $27.96. It was an excellent quarter, and with American Capital investing $1.2 billion in the quarter, the future is looking bright.
The publicly traded BDC field is fairly small, ranging from Allied Capital
Potential investors and shareholders should also pay close attention to the pooled portfolio data that American Capital provides with the earnings releases. These charts pool the company's investments by year, and show how each pool is performing in terms of loan quality, internal rate of return (IRR), and portfolio valuation, among other factors. Assuming the firm exits all of its investments at current valuations, American has achieved a 16.2% IRR since 1997, and 19.2% IRR since 2001 -- both numbers I think any Foolish investor would be ecstatic with. And to keep management honest with regards to company valuations (a potential area for misrepresentation), the company has retained valuation expert Houlihan Lokey since 2003 to regularly evaluate portfolio valuations.
All in all, this is an extremely well run company, and one that I regret selling. Since the company is trading at one of the highest valuations among BDCs at 1.5 times NAV, it is difficult to justify future outperformance from these shares. Investors might be better served looking at skilled players trading at lower valuations like Prospect Energy and Ares Capital for potentially strong returns.