3 Niche Service Companies With Greater Than 4% Dividend Yield And Strong Earnings Performance

Includes: CLCT, DIN, INTX
by: Black Coral Research

By Aman Jain

The service sector is showing signs of recovery, as seen in ISM's March survey, showing the sector as moderately healthy. The composite index also showed improvement, along with the employment sub-index, suggesting stronger economic growth in the months to come. With such evident signs of recovery, it's time to look at a few stocks in the industry, which could help investors pocket some gains.

The three stocks analyzed below have greater than 10% past 5 year EPS gorwth and a dividend yield of over 4%.

*as on 10th April.

Source: Yahoo! Finance

DineEquity (NYSE:DIN) is the franchisor of brands such as Applebee's and IHOP. After working hard for several years, the company was able finish its plan to become a 99% franchised company for both concepts. IHOP is the largest family dining concept with approximately 1,550 restaurants and enjoys 11% market share. Over the last five years, DineEquity has significantly reduced its debt and enhanced its free cash flow, while simultaneously growing its franchisees internationally. For the fourth quarter, the company reported a fall in profits to $18.8 million, or 97 cents a share, from $28.6 million, or $1.51 a share, a year earlier. The earnings, however, beat the analyst's expectations. Revenue for the company declined to $158.6 million from $242.2 million in the year-ago period. DineEquity also announced a cash dividend of 75 cents per share along with a $100 million share buyback program.

DineEquity has grown its dividend payments by an average annual rate of 24% and has one of the highest dividend yields in the industry. For the next five years, the company is expected to grow by 10% average annual rate. Also comforting is the fact that the company is in Michael Dell's top stock holding as of 4Q 2012. DineEquity also enjoys a healthy return on equity of 37% compared to the industry average of about 20%, and is also trading at a lower price compared to its peers.

The only big concern for the restaurant company is the recovering economy, as S&P expects the restaurant industry to grow by only a single digit same store growth in 2013.

Collectors Universe (NASDAQ:CLCT) is a company with few competitors and serves a small but growing industry. The company, with a market cap of about $92 million and 8.5 million shares outstanding, offers services like evaluating and authenticating high-value coins, trading cards, sport memorabilia, stamps, and various other collectibles. An interesting and valuable fact about Collectors Universe is that of the top 10 most valuable coins in each metal category (gold, silver, copper), about 7 or 8 have been graded by the company's Professional Coin Grading Service [PCGS]. This fact itself highlights the clout and the reach of the company.

For the second quarter, the company posted earnings of $0.6 million, which comes to about $0.07 per share. And of those earnings the company paid about $0.325/share dividends, which by any standards are very investor friendly. Other factors that make this company worth considering are its sports memorabilia and autograph services, which are growing due to an increased demand. Additionally, bulk coin submission activity is expected to rise in coming few months. Also, the company has been able to maintain high gross margin rates backed by active cost reduction measures.

The company's balance sheet is also strong enough to support a similar payout in future as it has over $17.5 million cash on hand and no long-term debts. Moreover, according to the CEO of the company, they have no plans to change the future dividend payout and are satisfied with their balance sheet. The grading firm has been investor-friendly as it has been paying out similar dividend every quarter since November 2010.

Intersections Inc. (NASDAQ:INTX) provides subscription-based consumer protection services and other consumer products and services primarily in the United States. The company is a leading provider of consumer and corporate identity theft risk management services. For the second time in a row, Intersections Inc. has earned a spot within the top 60 of The Washington Post's "Post 200". The list from the Washington Post includes some of the biggest public and private companies, banks, and nonprofit groups headquartered in the metropolitan area based on revenue and other features specific to their respective industry. The company announced in November a repurchase plan of up to $3.0 million of its common stock. The plan was to commence on December 1, 2012 and will remain in effect until May 31, 2013.

The company has something unique on its balance sheet: it has almost no debt at all. Revenue for the year 2012 stood at $349.2 million against $373.0 million for the year ended December 31, 2011. For the full year, net income for the company was $19.7 million compared to $18.6 million for the year ended December 31, 2011. Intersections paid ordinary cash quarterly dividends of $0.20 per share on March 15, 2013. For 2013, the company is expecting revenues to be 10% to 15% lower and adjusted EBITDA to be between 40% to 50% lower, as compared to 2012. The forecasts include decreased revenue and earnings from large financial institutions, a $4 million increase in marketing expenses and a loss of about $10 million from operations.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CLCT over the next 72 hours.

Business relationship disclosure: Black Coral Research is a team of writers who provide unique perspective to help inspire investors. This article was written Aman Jain, one of our Senior Analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Disclaimer:Black Coral Research is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Problem with this article? Please tell us. Disagree with this article? .