With so many investors seeking income through dividends, many popular stocks are trading at or near 52-week highs, and that has pushed yields lower. For example, The Coca-Cola Company (KO) yields just 2.7% and it trades for about 18 times earnings. Johnson & Johnson (JNJ) yields 3.6%, and it trades for about 14 times earnings.
One top analyst at AllianceBernstein (AB) believes there is a dividend stock bubble and feels that Verizon Communications (VZ) shares are possibly overpriced, as it trades for about 17 times earnings and yields around 4.7%. Investors might not be getting paid enough yield in some of the more well-known dividend stocks. That is why it could be far more rewarding to consider lesser-known stocks that offer a much higher yield to compensate investors for the risks of stock ownership.
Here is one stock that offers a yield that is double and even about triple of what many dividend stocks currently offer:
Fifth Street Finance Corp. (FSC) is a business development company that is focused on disbursing loans and making investments in small- to mid-sized companies. It generates returns by collecting interest, fees and capital gains on the loans and equity investments it makes. The transactions it participates in are often private equity deals. The company is also focused on paying out a high percentage of earnings to shareholders in the form of a dividend.
Fifth Street Finance often invests in companies that have earnings in the range of $5 million to $50 million. In addition to equity investments, it offers senior secured loans, junior secured loans, and mezzanine financing. It targets companies that are in a wide range of industries including: healthcare, manufacturing, business services, education, energy, aerospace, defense, technology, marketing and others.
Fifth Street Finance's investment portfolio includes companies like: Huddle House (restaurants), Genoa Healthcare (pharmaceuticals), Titan Fitness (leisure facilities), Phoenix Brands (household products), NDS Surgical Instruments (electronic instruments), ReBath (home improvement), Best Vinyl (building products), HealthDrive (healthcare services), and many more. Here are three more points to consider:
1) The company recently reported solid financial results for the third quarter of 2012: Net investment income was $21.9 million, or 27 cents per share. This compares favorably with $16.5 million or 25 cents per share for the same period last year.
2) Book value is $9.85 per share, so the stock is trading at just a slight premium. Many stocks trade well over book value, especially when the yield is so generous. Being able to buy the shares for close to book value is another sign that this stock is a solid value.
3) Insiders at Fifth Street Finance have recently purchased significant amounts of stock. On August 28, 2012, Leonard Tanenbaum (the CEO) bought 5,000 shares in a transaction worth about $53,400. He also bought 5,000 shares on August 27 in a transaction valued at $52,350. Other insiders have been buying as well. For example, on August 14, 2012, Ivelin Dimitrov (an officer) bought 1,000 shares in a transaction valued at about $10,300.
Here are some key points for FSC:
- Current share price: $10.49
- The 52 week range is $8.60 to $10.60
- Earnings estimates for 2012: $1.10 per share
- Earnings estimates for 2013: $1.15 per share
- Monthly dividend: 9.6 cents per share, which yields about 11%
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.