In the current low-yield environment investors often find themselves in situations where they are chasing yield by purchasing deeply distressed companies with unsustainable dividends. Furthermore, these companies are faced with a difficult competitive environment or structural issues that make capital appreciation highly unlikely. The companies below offer the best of both worlds, the prospect of capital appreciation and substantial dividend yields.
Navios Maritime Partners (NMM) - 11.80% yield
Navios Maritime Partners owns a fleet of dry bulk vessels that it leases to other shippers on long-term time charters. Due to its strategy of inking long-term time charters, the firm has largely avoided the sharp drop off in spot rates that afflicted the rest of the dry bulk industry since the market's collapse in 2008. Only six of the firm's 23 owned and two chartered in vessels are up for renewal in 2013. The company is a Master Limited Partnership (MLP) company that has elected to be taxed as a C Corp. Under the terms of the firm's partnership agreement it must distribute all excess cash at the end of each quarter.
A word of caution on the firm; management has a history of issuing equity to purchase new vessels, which typically results in short-term drops of 5-10% in the company's stock. However, management has typically been able to successfully redeploy the capital it has raised in a manner that created shareholder value.
Regal Entertainment (RGC) - 4.50% yield
Regal is the largest theater owner in the United States. According to Box Office Mojo, the last 10 years the theater industry has faced attendance that has declined 1.2% per year. Regal has been able to offset declining attendance by upgrading its theaters to digital and by pushing through price increases. The firm has consistently returned cash to shareholders with slightly less than $24 in special dividends over the last 10 years.
Western Union (WU) - 3.10% yield
Western Union is the biggest money transfer company in the world. The company's core consumer-to-consumer product allows migrant workers to send remittances from the developed to the developing world. Western Union is projected to generate at least $900 million a year in free cash flow in 2013. The company offers the prospect of steady cash flows at a paltry 9.62x 2012 earnings. In addition, shareholders receive a stake in a fast-growing digital payments business, westernunion.com that registered y-o-y gains of 16% revenue and 46% transaction growth.
Additional disclosure: A Student Investment Fund I am affiliated with holds a position in RGC and WU.