Kohlberg Capital: An Aggressive Small Cap Gem with a 14% Dividend Yield

That company is financial stock Kohlberg Capital (KCAP), a private equity and venture capital firm specializing in buyouts. It has a market capitalization of just $125 million, but a yield of 13.7% as of Monday morning's open!

For the record, this cash-rich company typically didn't pay a first-quarter dividend and this 14% yield is an annualized rate. But judging by the company's dividend history of paying out disbursements in Q2-Q4 of 2009 and Q2-Q4 of 2008, it's reasonable to expect Kohlberg to offer another hefty payout very shortly.

Another disclaimer: Kohlberg has reported steady earnings recently, but it must be acknowledged that class-action lawsuits have been filed against the company regarding its reporting practices. KCAP shares were really beaten down in early 2010 due to these troubles, dropping under $4 in early February, but have rebounded since then to the high $5 range and could be a good investment for those with the stomach for it.

Oh and one more thing -- Kohlberg is a very small-cap stock with thin trading volume, so you can expect some volatility in prices. Any investors looking to buy or sell shares should always protect themselves with a limit order.

Obviously this is a very aggressive play. But what do you expect? The highest yield dividend stocks in the Dow are lumbering blue chips that may offer a nice dividend yield but haven't done much in the way of share price movement. Take AT&T (T), which has wiggled in a range of about $24 to $28 for the last twelve months, and is essentially right where it started in May 2009. In fact, it's essentially right where it was in May 2006 and May 2003, too!

You're really taking the bull by the horns with KCAP, but great risk can also come with great reward. The stock market is ripe for buyouts right now and Kohlberg could be one move away from a surge and deliver big profits to investors.

Sure, the stock could slide again if the lawsuit drags on -- or the company could cut or eliminate its dividend, erasing one of the biggest selling points. But if you want zero risk, go ahead and take out a CD that barely keeps up with the rate of inflation.

There are a host of small cap stocks with +11% yields out there for investors who are aggressive enough to take the plunge, and some of them may deliver the perfect mix of share price appreciation and hefty quarterly dividends. If Kohlberg isn't right for your portfolio or your risk level, that's fine -- but don't write off all small-cap stocks if you're leaning towards dividends to hedge your risk. There are some great finds out there once you know where to look.

As of this writing, Jeff Reeves did not own a position in any of the stocks named here.