Interactive Investor

Latest IPO to target 8% dividend yield

25th February 2015 14:09

Lee Wild from interactive investor

Speciality lending platforms have flourished since the financial crisis as stiffer regulation bars traditional banks from certain types of lending to both consumers and small businesses. In the US, these loans have swelled from $0.2 billion in 2010 to $7 billion last year, and there’s been a similar boom in the UK over the past two years.

It's a market VPC Specialty Lending Investments wants to exploit with substantial new funds. A placing is targeting £200 million of gross proceeds which it will use to invest in things like loans to small businesses, advances against corporate trade receivables and provision of credit facilities, mainly in the US and Europe.

And there appears to be a good chance of success here, certainly if the company's track record is anything to go by.

VPC's investment manager, Victory Park Capital, has been in the business since 2010 and made more than $1.7 billion of investments across 12 specialty finance platforms. Set up in 2007 by Richard Levy, Brendan Carroll, and Matthew Ray, all former colleagues at Illinois hedge fund Magnetar Capital, it has generated an aggregate gross return on invested capital of over 24 per cent, or 19% net.

Only last month, Victory Park provided a £150 million funding line to Assetz Capital, a firm set up by serial entrepreneur Stuart Law to provide non-bank loans to companies and property developers.

Big dividends on offer

Much lower overheads and better margins than traditional bricks-and-mortar lenders mean the speciality sector can be far more competitive. For shareholders, the attractions are obvious, too. VPC is targeting a net dividend yield of 8% and a net total return of over 10% per annum, once the proceeds are fully invested, expected to be within six months after the shares begin trading on 17 March.

It also intends to pay quarterly dividends to shareholders and distribute at least 85% of its distributable income earned in each financial year.

Others who have made similarly tasty dividend promises have done well over the past few months. An 8% dividend yield formed part of the prospectus compiled by entu (UK) (ENTU) last autumn. When we drew attention to the potentially sizeable income opportunity, the shares were trading at little more than the 100p placing price. Now, they’re 122p, but the prospective yield is still 6.5%.

Similarly, 100-year-old furniture chain ScS Group (SCS) is up 22% since it floated last month to 214p. Bosses are targeting an 8% dividend yield for the year ended 25 July 2015, but again, even after the rally the forward yield is 6.5%.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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