Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

February 23, 2011 - Apollo Investment Corp. (AINV-NASDAQ) invests in business development and operates as a closed-end management investment company, investing in middle market companies, providing direct equity capital, mezzanine and senior secured loans, and subordinated debt and loans.

It prefers to invest in warrants, make equity co-investments, and may also invest in cash equivalents, U.S. government securities, high-quality debt investments that mature in one year or less, high-yield bonds, distressed debt, non-U.S. investments, or securities of public companies that are not thinly traded.

The company typically invests in building materials, business services, cable television, chemicals, consumer products, direct marketing, distribution, energy and utilities, financial services, healthcare, manufacturing, media, publishing, retail and transportation. It primarily invests between $20 million and $250 million in its portfolio companies. Management seeks issues with stated maturities of five to ten years.

A couple of things to note up front: the stock sold for $2.00 a share in early 2009 when the stock market looked like it was closing for good. The other is that it lost $4.39 a share in 2008 (in 2006 it earned $3.64 a share followed by a loss of 30 cents a share in '07). The takeaway: this is a volatile stock, not for the queasy.

When earnings bounce around like this, dividends do too. In 2007 they were $2.06 a share. In 2008, they were $2.08 a share. In 2009, they dropped to 80 cents. Last year, they went up to $1.12. This year, they're on track to repeat, giving a yield of 9.00% (fiscal year ends March 31).

Earnings aren't going to cover that pay out this year. They're expected to be 99 cents, according to a consensus from 16 analysts. Next year, they see $1.07. Look for 25 cents a share for the final fiscal quarter compared to 28 cents last year in the fourth. First quarter should be 25 cents as well, above the 22 cents of this year's first.

Analysts see management allocating about $700 million in capital to investments this year. Much of that should go into adjustable rate debt due to the almost inevitable onslaught of inflation. Part of the large capital base came from a recent senior unsecured convertible debt issue, due in 2016. It has 5.75% coupon with a conversion price of $13.75. All told, it represents $200 million and a possible addition of 14.55 million shares. There are now 195.5 million shares outstanding.

Essential numbers: Market Cap is $2.30 billion. Forward P/E is 11. Price to sales is 6.6. Price to book is 1.22. Book value is $9.73. Operating margin is 66.45% while Profit margin is 16.63%. For the last 12 months, Return on equity was 3.14% and Return on assets was 4.41%. Revenues were $351.75 million. There's $211.61 million in cash for $1.08 a share. Total debt is $999.89 million. Debt to equity is 52.67%. Current ratio is .95. Beta is 1.85. In the last 52 weeks, the stock is up 3.94%. There are 195.5 million shares outstanding. Insiders own .71%. Institutions have 58.50%.

Income investors with an optimistic view on the economy and a higher than average tolerance for risk will look at this high yielding stock with interest. Others may not be able to tolerate this rather volatile stock that has a track record of rapid deterioration in earnings as well as a quick recovery.