For many investors, the search for income leads them to junk bonds with yields of about 7%, or mortgage real estate investment trusts like Annaly Capital Management, Inc. (NLY), which has historically generated significant yields of over 10%. Mortgage REIT stocks make sense for many investors over longer periods of time, but this sector is often plagued with secondary offerings and dividend cuts that can impact short-term results. Nonetheless, the yields in this sector make the risks and volatility worth taking on. That said, it is also important to diversify into other sectors in order to keep some balance in a portfolio.
One stock to consider for high-yields and potential capital gains is AllianceBernstein Holding L.P. (AB). It is an investment management company that offers a wide range of products and services such as mutual funds, financial consulting, and institutional services. The company is an industry leader and the shares appear undervalued. Here is a closer look at Alliance Bernstein, along with some reasons why it makes sense to buy it now:
1) The stock appears undervalued based on a comparison to its peer group. For example, Legg Mason Inc. (LM) only offers a yield of 1.7%, and it trades for about 18 times earnings. By comparison, Alliance Bernstein stock trades for just about 11 times forward earnings estimates, and the average stock in the S&P 500 Index trades for about 13 times earnings.
2) Alliance Bernstein shares are trading below book value, which is $15.64 per share. Most stocks trade well above book value, and this is yet another sign that the shares have more upside than downside.
3) Alliance Bernstein has a significant level of business and it recently reported about $407 billion in assets under management on July 31, 2012. That is a significant asset base, and a small improvement in the investment returns could lead to leveraged gains for this company. As the market continues to advance, more investors could join the rally and spark growth for investment management companies like Alliance Bernstein.
4) Citigroup (C) just upgraded this stock to a buy on Friday, August 10, 2012. Analyst support can lead more investors into the shares and send the price higher. While waiting for a higher share price, investors are paid a generous yield of over 8%.
Here are some key points for AB:
- Current share price: $13.02
- The 52 week range is $12.46 to $24.20
- Earnings estimates for 2012: $1.03 per share
- Earnings estimates for 2013: $1.19 per share
- Annual dividend: $1.04 per share which yields 8.2%
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.