With many dividend stocks trading well below the recent highs, it makes sense to use the current pullback as a buying opportunity. One way to sort through which companies are worth investing in, is by following what the insiders are doing. Company executives and directors tend to know their businesses best as well as when it makes sense to buy shares. Buying dividend stocks on pullbacks is a strategy that has been paying off for the past couple of years. Since interest rates are likely to remain low for the foreseeable future, it makes sense to buy on dips, especially when insiders are doing the same. With that in mind, here is one high-yielding stock with significant insider buying right now:
CYS Investments, Inc. (CYS) shares were trading over $14 just a few weeks ago, but have since dropped about 10%. This company is set up as a real estate investment trust (REIT) and is focused on investing in mortgage securities that are guaranteed by Federal National Mortgage Association, Fannie Mae, and other agencies. Like many companies in this sector, CYS borrows money at low interest rates and invests it in higher-yielding assets. Since it is a real estate investment trust, it must pay out at least 90% of its income to shareholders. With this type of business model, stocks in this sector generate very high yields that can outperform most dividend-payers.
The Federal Reserve's recent QE3 program has impacted the mortgage REIT sector because it has lowered interest rates. Lower rates have caused some homeowners to refinance their mortgages and this reduces profits for mortgage REITs like CYS. However, the sector appears to be adjusting to the new dynamics and many of these companies (including CYS) have recently reduced the dividend in order to reflect a more sustainable level. The QE3 program is a double-edged sword for this industry because it does cause some mortgage refinancing, but on the positive side, it also keeps borrowing rates low for companies like CYS. The stock appears to be worth buying at current levels because the yield is high, and also because the company recently announced it would repurchase shares worth up to $250 million, and this indicates that management believes the shares are undervalued.
Insiders are also taking advantage of the value in the stock and they
are buying. For example, on December 2, Jeffrey Hughes (a director),
purchased 44,800 shares in a deal valued at $567,000. Plus, he
and other insiders have been buying shares in November and October as well. Another positive is that this stock trades below book value which is $14.48 per share. With the stock down from recent highs and with a yield of 14.1%, it makes sense to consider following the insiders and buying with them.
Here are some key points for CYS:
- Current share price: $12.90
- The 52 week range is $11.45 to $15.03
- Earnings estimates for 2012: n/a on Yahoo Finance
- Earnings estimates for 2013: n/a on Yahoo Finance
- Annual dividend: $1.60 per share which yields 12.3%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.