2 Dividend Plays for the Adventurous Investor

Includes: AYR, FLY
by: The Dividend Pig

Dividend investors sometimes get a bad rap. Sure, we like stability, and for us, slow and steady growth wins the race. But this doesn't mean we can't occasionally look outside our window and take a chance on something new. Just don't expect us to bet the farm on it, or sell our portfolio stalwarts to fund it.

Two such companies come to mind when I think of unconventional, risky, yet interesting dividend investments. These companies engage in the business of buying and leasing modern jet aircraft - a business expected to grow as operators find it more financially rewarding to lease aircraft rather than buy them outright. They also pay a pretty hefty dividend.

Keep in mind, these companies are not for the faint of heart. For one, they essentially operate by renting out commercial jets, and the airline business is a very erratic industry, as well as one that has not done well for investors over the years.

Second, one company is an ADR. Fly Leasing Limited (FLY) is headquartered in Ireland, in order to take advantage of the low corporate tax rates. Be sure to understand the implications of buying an ADR before you invest.

Third, these companie rely heavily on their financials to make money. This includes debt, interest rates, depreciation, and many other complicated financial instruments. Tread carefully, and be sure you understand how they make money before you invest.

FLY Leasing (NYSE: FLY) is a leading global aircraft lessor. They acquire and lease modern, high-demand and fuel-efficient commercial jet aircraft under long-term contracts to a diverse group of airlines throughout the world. FLY Leasing currently has a fleet of 60 aircraft that it leases under multi-year operating leases to 34 airlines in 23 countries.

Revenue growth has exploded in the past 5 years, from 56 million to 219.7 million, an astounding average yearly growth of 40%. This has not however translated into significant earnings growth. In fact, earnings decreased 35.6% in 2010, from $2.89 to $1.86.

The dividend is currently at $.20 a share per quarter, or $0.80 yearly. At the current price of $14.00, the stock yields 5.7%. If you are a smarter investor than I, like the banker who first put me on to these companies, you could have bought in at $3 in 2009, for a whopping yield of 27% and capital gains to date of 367%.

Aircastle Limited (NYSE: AYR) is a global company that acquires, leases, and sells commercial jet aircraft to passenger and cargo airlines throughout the world. As of December 31, 2009, the aircraft portfolio consisted of 129 aircraft that were leased to 60 lessees located in 33 countries.

More strong revenue growth here, with 5 year average growth of 30%. Still, earnings have been stagnant, and after hitting a high of $1.68 in 2007, earnings fell back to $0.83 in 2010. Dividends have decreased over the years from $1.13 a share in 2006 to just $0.40 a share in 2010. Still, at the current price of $13.36, they carry a 3% yield.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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