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Arie Goren, Portfolio123 (475 clicks)
Long only, value, research analyst, dividend investing
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In my previous posts (here and here), I described three energy stocks and three basic materials stocks with dividend yields over 10%. In this article, I describe three financial stocks with dividend yields over 10%, which, in my opinion, can reward investors with capital gains along with a very rich dividend. I recommend readers use this list of stocks as a basis for further research. All the data for this article were taken from Yahoo Finance, Portfolio123 and finviz.com, on October 11, before the market open.

Arlington Asset Investment Corp. (AI)

Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets.

Arlington Asset Investment has an extremely low trailing P/E of 1.67 and a very low forward P/E of 6.12. The price-to-cash ratio is at 10.14, and the price to book value is very low at 0.72. The forward annual dividend yield is very high at 15.02%, and the payout ratio is only 24.9%. The annual rate of dividend growth over the past five years was at 3.13%.

Analysts recommend the stock. Among the five analysts covering the stock, two rate it as a strong buy, one rates it as a buy, and two rate it as a hold.

Arlington Asset Investment has recorded strong EPS growth during the last year, and the last five years, as shown in the charts below.

Source: Portfolio123

(click to enlarge)

Source: company presentation

Arlington Asset Investment's trailing and forward P/E ratios have been much better than that of the industry median, the sector median and the S&P 500 median, as shown in the table below.

(click to enlarge)

Source: Portfolio123

Arlington Asset Investment will report its latest quarterly financial results on October 28. AI is expected to post a profit of $1.02 a share, a $0.32 decline from the company's actual earnings for the same quarter a year ago.

On July 29, Arlington Asset Investment reported its second-quarter results, which beat EPS expectations by $0.04. The company reported non-GAAP core operating income of $18.9 million for the quarter ended June 30, 2013, or $1.12 per share. On a GAAP basis, the Company reported net income of $3.2 million for the quarter ended June 30, 2013, or $0.19 per share, compared to net income of $3.2 million for the quarter ended March 31, 2013, or $0.23 per share, and net income of $2.1 million, or $0.22 per share, for the quarter ended June 30, 2012.

Arlington Asset Investment has recorded strong EPS growth, and considering its compelling valuation metrics, and the fact that the stock is trading way below book value, AI stock can move higher. Furthermore, the very rich dividend represents a gratifying income.

Risks to the expected capital gain and to the dividend payment include a downturn in the U.S. economy, and volatility in interest rates and interest rate sensitive securities.

(click to enlarge)

Chart: finviz.com

Ellington Financial LLC (EFC)

Ellington Financial LLC, a specialty finance company, acquires and manages mortgage-related assets in the United States.

Ellington Financial has no long-term debt at all, and it has an extremely low trailing P/E of 4.30 and a very low forward P/E of 7.44. The average annual earnings growth for the past five years was very high at 93.5%, and the average annual sales growth for the past five years was also very high at 61%. The price-to-cash ratio is very low at 2.61, and the price to book value is also very low at 0.82. The forward annual dividend yield is very high at 13.47%, and the payout ratio is at 56.6%.

The EFC stock price is 1.78% above its 20-day simple moving average, 3.83% above its 50-day simple moving average and 2.01% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

Analysts recommend the stock. Among the six analysts covering the stock, two rate it as a strong buy, three rate it as a buy, and only one rates it as a hold.

Ellington Financial's margins have been much better than that of the industry median, the sector median and the S&P 500 median, as shown in the table below.

(click to enlarge)

Ellington Financial's trailing and forward P/E ratios have been much better than that of the industry median, the sector median and the S&P 500 median, as shown in the table below.

(click to enlarge)

Source: Portfolio123

Ellington Financial will report its latest quarterly financial results on November 05. EFC is expected to post a profit of $0.71 a share, a $0.88 decline from the company's actual earnings for the same quarter a year ago.

Ellington Financial has recorded strong revenue and EPS growth, and considering its low P/E ratio, and the fact that the stock is trading way below book value, EFC stock can move higher. Furthermore, the very rich dividend represents a gratifying income.

Since the company is rich in cash ($8.76 a share) and has no debt and its payout ratio is low, there is hardly any risk that the company will reduce its dividend payment.

(click to enlarge)

Chart: finviz.com

Prospect Capital Corporation (PSEC)

Prospect Capital Corporation is a business development company. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth, buyouts, recapitalizations, turnaround, growth capital, development, cash flow term loans, and bridge transactions.

(click to enlarge)

Source: company presentation

Prospect Capital Corporation has a very low trailing P/E of 10.44 and a very low forward P/E of 8.52. The price to book value is low at 1.02, and the average annual sales growth for the past five years was very high at 48.7%. The forward annual dividend yield is very high at 11.92%, and the payout ratio is at 120%. The annual rate of dividend growth over the past year was at 8%, over the past three years was at 4.39%, and over the past five years was at 1.80%.

Growth

Prospect Capital Corporation has recorded strong revenue growth during the last year, the last three years and the last five years, as shown in the table below.

Source: Portfolio123

Prospect Capital Corporation's sales growth has been much better than that of the industry median, the sector median and the S&P 500 median, but its earnings growth has been inferior, as shown in the table below.

(click to enlarge)

Source: Portfolio123

(click to enlarge)

(click to enlarge)

Source: company presentation

Margins

Prospect Capital Corporation's margins have been much better than that of the industry median, the sector median and the S&P 500 median, as shown in the table below.

(click to enlarge)

P/E Ratios

Prospect Capital Corporation's trailing and forward P/E ratios have been much better than that of the industry median, the sector median and the S&P 500 median, as shown in the table below.

(click to enlarge)

Prospect Capital Corporation has recorded strong revenue growth, and considering its compelling valuation metrics, and the fact that the stock is trading at book value, PSEC stock can move higher. Furthermore, the very rich dividend represents a gratifying income.

Risks to the expected capital gain and to the high dividend payment include: a downturn in the U.S. economy, and the company's massive debt of $1.68 billion.

(click to enlarge)

Chart: finviz.com

Source: 3 Low P/E Financial Stocks Yielding Over 10%