3 Reasons To Buy This $7 Stock With A 10.5% Yield

Aug.20.12 | About: Apollo Investment (AINV)

Investors have been focusing on dividend stocks for at least a couple of years now. The Federal Reserve has pushed interest rates down to record lows, and that has led to a boom in large-cap stocks. For example, General Electric Company (NYSE:GE) has long been considered a blue-chip stock and it is known for having a long history of paying dividends. This has put it at the top of the list for many investors and that has taken the stock up from a 52-week low of $14.02, to its current $21 per share. Because of the higher stock price, the shares now only yield about 3.2%. While that is decent, it is far from exciting and it could lead to diminished returns, going forward. That is why it could pay for investors to look at lesser known, but still solid companies that offer much higher yields. Here is one company that offers a dividend yield that is about triple the yield offered by General Electric:

Apollo Investment Corporation (NASDAQ:AINV) provides debt and equity capital to a wide-range of companies such as restaurants, food distribution, healthcare, technology and other industries. It earns income from fees, interest payments, capital appreciation and other related sources, and it pays a large portion of its income to shareholders in the form of a dividend. Since this company is registered as a "business development company", or "BDC", it receives a more advantageous tax status that benefits shareholders.

Investment Portfolio: Apollo has invested (through debt or equity) in a number of well known companies that include: Avaya, Inc. (a provider of voice communication systems), Booz Allen Hamilton (NYSE:BAH), Chesapeake Energy Corporation (NYSE:CHK), Miller Energy Resources (NYSE:MILL), and many others. A complete list of companies in the Apollo portfolio can be seen here.

Apollo recently reported solid financial results for the quarter that ended on June 30, 2012. It announced net investment income of 20 cents per share, excluding a one-time, 1 cent per share charge. It also reduced the leverage ratio to .53 at June 30, 2012, compared to .59 at March 31, 2012. The company CEO appears to be managing the company in a conservative fashion, while remaining opportunistic and he recently stated:

"Given our cautious view of the overall market environment, we continued to methodically sell select investments and reduce leverage during our first fiscal quarter without sacrificing net investment income. Looking ahead, we believe that we are very well positioned to take advantage of future market opportunities."

Here are 3 reasons to consider buying this stock, especially on dips:

1) This stock has been trending up, and it has risen from about $7 per share in June, to around $7.77 currently. However, the stock still looks undervalued and it trades below book value, which is $8.30 per share.

2) A few weeks ago multiple insiders were buying shares right around current levels, which means there could be additional upside. On June 6, 2012, Edward J. Goldthorpe, an officer, bought 20,000 shares for $7.75, in a transaction valued at about $155,000. Also on June 6, Gregory Hunt bought 5,000 shares for $7.62 each, in a transaction valued at about $38,000.

3) Earlier this year, analysts at Barclays (NYSE:BCS) upgraded the shares from equal weight to overweight, and set a $9 price target. This would provide investors with a gain of about 20%, from current levels.

Here are some key points for AINV:

  • Current share price: $7.77
  • The 52 week range is $5.97 to $9.48
  • Earnings estimates for 2012: 82 cents per share
  • Earnings estimates for 2013: 86 cents per share
  • Annual dividend: 80 cents per share which yields 10.5%

Data is sourced from Yahoo Finance.

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

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.