Ladenburg Thalmann (LTS) released a $115 million worth of preferred stock last month. The yield is 8%, which is very appealing to income investors. What's even better is the fact that the dividends are paid each month. The series A preferreds are also trading under par value as well. So what do income investors do here? Well in order to see if the preferreds are right for you, we have to look at how Ladenburg has done.
In 2012, Ladenburg made $2 million in free cash flow. In the 1st quarter of 2013, FCF was around $2.2 million. It's good to see a trend like this given the company had negative free cash flow of over $30 million in 2011.
Ladenburg plans to use the offering to pay down its debt. If you divide the overall interest expense over total debt, you get an average cost of capital around 12%. So this 8% offering essentially helps the company lower borrowing costs.
Truth be told, most people haven't heard of Ladenburg before. However, this is a company with more than a 100 years of operating history. The company also seems to be adding several financial institutions as clients lately. Just recently, Ladenburg signed over 15 institutions with assets of more than $3.75 billion. The company has over $75 billion under management through its advisory group. So Ladenburg is clearly still a big player in the brokerage business.
Ladenburg's insiders also seem to be convinced regarding the company's future. Phillip Frost, a director, purchased $20 million worth of shares recently.
I think Ladenburg's series A preferred is a great opportunity to get an 8% yielding stock that pays monthly. Not to mention that the preferred is trading under par value. Given Ladenburg's market cap, many investors might be iffy about purchasing these preferreds, but clearly the company seems to be turning itself around. I recommend investors open a small position as long as you are able to purchase it below par.
There is always a possibility that this goes above par, but given the yield and payment frequency, it would be a great long-term investment for those looking to put their dry powder somewhere.
Additional disclosure: I plan to open a small position in LTS-A.