In my view, income-oriented investors should consider Fortress Transportation and Infrastructure Investors LLC (NYSE:FTAI). The company has strong balance sheet; its total cash is at $382 million while the total debt is only $271 million. Moreover, the stock is trading way below book value; price to book is only 0.65. FTAI is paying a generous dividend currently yielding 13.24%. CEO Joe Adams said at the company's earnings call on March 02 that the recent announced quarterly dividend of $0.33 per share is the company's third dividend as a public company and the 18th consecutive dividend since the beginning of FTAI four years ago. According to Mr. Adams, the company is very committed to this dividend, and there's nothing at this time that he sees in either the past quarter or as he looks ahead which places the dividend in question.
Fortress Transportation and Infrastructure Investors LLC owns and acquires high quality infrastructure and equipment that is essential for the transportation of goods and people globally. FTAI currently invests across four market sectors: aviation, energy, intermodal transport and rail. FTAI targets assets that, on a combined basis, generate strong and stable cash flows with the potential for earnings growth and asset appreciation. The company's existing mix of assets provides significant cash flows as well as organic growth potential through identified projects.
Source: Conference Presentation
Last Quarter Results
On March 01, Fortress Transportation reported financial results for the quarter and full year ended December 31, 2015. The company reported adjusted EBITDA of $21.7 million and an adjusted net loss of $2.6 million. FTAI reported worse than expected Funds Available for Distribution ("FAD") of $10.1 million due to lower proceeds from the sale of assets. The decline in energy prices continued to drive operating losses at the company's port Jefferson crude-by-rail terminal. However, the company impressed by its ability to strategically sell assets to generate cash in a challenging operating environment.
First Quarter Report
Fortress Transportation is scheduled to report its first-quarter 2016 financial results on Tuesday, May 03, after market close. According to 9 analysts' average estimate, FTAI is expected to post a profit of $0.05 a share. The highest estimate is for a profit of $0.35 a share while the lowest is for a loss of $0.04 a share. Revenue for the first quarter is expected to increase 50.4% year-over-year to $51.08 million, according to 5 analysts' average estimate.
Dividend and acquisitions
Since income-oriented investors are mainly interested in the dividend payment, they can be encouraged by CEO Adams explanation at the recent conference. According to Mr. Adams, on capital allocation decision the company faces today it is in an enviable spot. FTAI believes it can maintain its dividend while it has substantial resources available for new investments. Mr. Adams also emphasized that the company is very committed to the dividend. According to the company, with its projected growth in aviation, the FAD contribution from that alone will soon cover 100% of the dividend. Assuming its existing infrastructure investments become cash flow breakeven or better, CMQR is there, and Jefferson is very close then the dividend would be covered without reflecting any contributions from new acquisitions or the existing infrastructure investments.
According to Mr. Adams, for new acquisitions, this is the best market he has seen since 2009 and 2010. Many very high-quality companies that had access over the last few years to cheap, readily available debt are today overleveraged which is now suddenly out of favor in public markets. As such, investing in public securities, particularly discounted high-yield debt or loans, offers highly attractive returns or even better cheap entry points for equity ownership. Also, some of these investments would add value to the company's existing portfolio which for it would be winning squared. The great thing about where FTAI is today is it can take advantage of opportunities in sectors which are capital short while still maintaining a great deal of financial flexibility for itself.
Since the beginning of the year, FTAI's stock is down 11.5% while the S&P 500 Index has increased 2.1%, and the Nasdaq Composite Index has lost 2.2%.
FTAI Daily Chart
Chart: TradeStation Group, Inc.
FTAI's valuation is excellent, the forward P/E is very low at 10.08, and the Enterprise Value/EBITDA ratio is at 16.53. The quick ratio is extremely high at 8.20, and the price to cash is very low at 1.97. The stock is trading way below book value; the price to book is exceptionally low at 0.65, the lowest among all 32 Russell 3000 companies with a market cap greater than $500 million and yielding more than 10%. Furthermore, the PEG ratio is extremely low at 0.23, the second lowest among all Russell 3000 companies with a market cap greater than $500 million and yielding more than 10%. The PEG ratio - price/earnings to growth ratio - is a widely used indicator of a stock's potential value. It is favored by many investors over the P/E ratio because it also accounts for growth. A lower PEG means that the stock is more undervalued.
The 10 Russell 3000 companies with a market cap greater than $500 million and yielding more than 10% with the lowest price to book value
The 10 Russell 3000 companies with a market cap greater than $500 million and yielding more than 10% with the lowest PEG ratio
In my view, income-oriented investors should consider FTAI's stock. The company is paying a generous dividend currently yielding 13.24%, and the company clarified that it is very committed to this dividend. Since the company has a strong balance sheet, I believe that the high dividend payment is sustainable. According to the company, on capital allocation decision it faces today it is in an enviable spot. FTAI believes it can maintain its dividend while it has substantial resources available for new investments. What's more, FTAI's valuation is excellent, the stock is trading way below book value, and its PEG ratio is extremely low at 0.23, the second lowest among all Russell 3000 companies with a market cap greater than $500 million and yielding more than 10%.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.